<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
File Nos. 811-08278 and 033-73882
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 14 [X]
THE FULCRUM TRUST
(Name of Registrant)
440 Lincoln Street
WORCESTER, MASSACHUSETTS 01653
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(800) 917-1909
(Names and Addresses of Agents for Service:)
George M. Boyd, Esq. Christopher E. Palmer, Esq.
Allmerica Financial Shea & Gardner
440 Lincoln Street 1800 Massachusetts Avenue, NW
Worcester, MA 01653 Washington, DC 20036
Approximate Date of Proposed Public Offering CONTINUOUS
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
_X_ on May 1, 2000 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
THE FULCRUM TRUST
PROSPECTUS
May 1, 2000
The Strategic Income Portfolio is a separate portfolio of the Trust which serves
as the underlying investment vehicle for insurance contracts and qualified
retirement plan accounts.
Allmerica Financial Investment Management Services, Inc. as manager is
responsible for managing the Trust's daily business and has general
responsibility for the management of the investments of the Portfolio.
Allmerica Asset Management, Inc., the Portfolio Manager, has been hired to
manage the investments of the Portfolio.
This Prospectus explains what you should know about the Portfolio. Please read
it carefully before you invest.
On or about July 1, 2000, subject to regulatory approval, shares of the Select
Investment Grade Income Fund (the "Fund") of the Allmerica Investment Trust
("AIT") will be substituted for shares of the Portfolio. As of the substitution
date, shares of the Fund will be available and shares of the Portfolio will no
longer be offered.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE
FULCRUM
TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(800) 917-1909
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
OBJECTIVE, STRATEGIES AND RISKS 3
EXPENSE SUMMARY 4
DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 8
OTHER INVESTMENT STRATEGIES 10
MANAGEMENT OF THE PORTFOLIO 12
MANAGEMENT AND PORTFOLIO MANAGEMENT 14
INVESTMENT ADVISORY FEES
EXPENSE LIMITATIONS 16
PRICING, PURCHASE AND REDEMPTION 17
DISTRIBUTIONS AND TAXES 18
FINANCIAL HIGHLIGHTS 21
APPENDIX 22
</TABLE>
LEGEND
Performance [GRAPHIC]
Investment [GRAPHIC]
Objectives
Financial [GRAPHIC]
Information
Management [GRAPHIC]
of Fund
Risk [GRAPHIC]
Investment [GRAPHIC]
Strategies
2 The Fulcrum Trust
<PAGE>
OBJECTIVE, STRATEGIES AND RISKS
THE STRATEGIC INCOME PORTFOLIO
[GRAPHIC] PORTFOLIO MANAGER: ALLMERICA ASSET MANAGEMENT, INC.
[GRAPHIC] INVESTMENT OBJECTIVE: The Portfolio seeks to make money for investors
by investing for high current income and capital appreciation in a variety of
fixed-income securities.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGY: The Portfolio invests primarily in
investment grade corporate debt securities and securities issued or guaranteed
as to principal or interest by the U.S. Government or its agencies or
instrumentalitites; below investment-grade corporate debt securities; and
foreign securities which include government debt of developed and emerging
markets, corporate obligations of foreign companies, and debt obligations of
supranational entities.
Debt securities in which the Portfolio may invest include bonds, notes,
debentures, mortgage-backed and asset-backed securities, and other similar
instruments. Securities are selected based on their relative value merits.
The Portfolio normally invests at least 50% of its total assets in U.S. and
foreign debt and other fixed-income securities that, at the time of purchase,
are investment grade. No more than 50% of the Portfolio's assets may be
invested in below investment grade securities, or junk bonds.
[GRAPHIC] PRINCIPAL RISKS:
- - Credit Risk
- - Emerging Markets Risk
- - Foreign Investment Risk
- - Interest Rate Risk
- - Investment Management Risk
- - Liquidity Risk
- - Market Risk
- - Prepayment Risk
See "Description of Principal Investment Risks."
The bar chart shows how investment returns of the shares of the Portfolio have
varied for the life of the Portfolio. The table following the bar chart shows
how the Portfolio's average annual returns for the last one year and life of the
Portfolio compare to those of a broad-based securities market index. PAST
PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE
FUTURE. The bar chart and table give some indication of the risks of investing
in the Portfolio by showing changes in the Portfolio's performance. The bar
chart and table do not reflect expenses associated with the variable insurance
product that you are purchasing. If those expenses had been reflected, the
performance shown would have been lower.
ANNUAL TOTAL RETURN [GRAPHIC]
Bar Chart
- ---------
1997-- .60%
1998-- 6.53%
1999--(3.12%)
[GRAPH]
During the period shown above, the highest quarterly return was 4.44% for the
quarter ended September 30, 1998 and the lowest was (3.11)% for the quarter
ended March 31, 1997.
Allmerica Asset Management, Inc. became the Portfolio Manager of the Portfolio
on April 11, 1998. Performance before that date is based on the performance of
the Portfolio's previous Portfolio Manager.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending PAST SINCE INCEPTION
December 31, 1999) ONE YEAR (FEBRUARY 1, 1996)
- ---------------------- -------- ------------------
Portfolio Shares (3.12%) 1.07%
- ---------------- ------ ------
Lehman Brothers
Aggregate Bond Index* (0.83%) 5.14%
- --------------------- ------ ------
*Lehman Brothers Aggregate Bond Index - Registered Trademark - is an unmanaged
index of all fixed rate debt issues with an invested grade rating at least one
year to maturity and an outstanding par value of at least $25 million.
The Fulcrum Trust 3
<PAGE>
EXPENSE SUMMARY
The following tables describe the fees and expenses that you may pay if you
invest in the Portfolio. The expenses listed below are not the only expenses if
you are purchasing a variable insurance contract. You should refer to the
variable insurance contract prospectus for more information relating to fees and
expenses, which are in addition to the expenses of the Portfolio.
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
For the first 12 full calendar months after a new Portfolio Manager is hired
(or, in the case of a Portfolio that has had only one Portfolio Manager, for the
first 12 full calendar months of operations), the advisory agreements set the
management fee at an annual rate of 0.80% of the Portfolio's average daily net
assets.
After the initial 12-month period described above, the Portfolio has a
performance-based advisory fee. See "Management and Portfolio Management
Investment Advisory Fees." This fee is in effect for the Strategic Income
Portfolio.
Shown below is expense information first using the fees that actually applied
during 1999. Also shown below is expense information assuming fees of 0.00%,
2.00% and 4.00%, because the fee in 2000 and future years may vary. You should
note, however, that the fee could be any figure between 0.00% and 4.00%, not
just the specific figures shown below.
For each of the fee levels shown, we have included an example prepared in
accordance with the requirements of the Securities and Exchange Commission
("SEC"). The purpose of the examples is to assist investors in comparing the
cost of investing in the Portfolio with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment earns a 5% return each
year and that the Portfolio's operating expenses remain the same. Your actual
costs may be higher or lower.
4 The Fulcrum Trust
<PAGE>
1. USING 1999 MANAGEMENT FEES
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL ANNUAL
FEES MANAGEMENT DISTRIBUTION OTHER FUND
(FEES PAID DIRECTLY FEES (12B-1) FEES EXPENSES(1,2) OPERATING
FROM YOUR INVESTMENT) EXPENSES
- --------------------- --------
<S> <C> <C> <C> <C>
None 0.35% None 3.48% 3.83%
---- ---- ---- ---- ----
</TABLE>
EXAMPLE. The purpose of this example is to assist investors in comparing the
cost of investing in the Portfolio with the cost of investing in other mutual
funds. Your actual costs may be higher or lower. A shareholder would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
the advisory fees in the above chart, and (3) redemption at the end of each time
period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$393 $1,190 $2,006 $4,121
---- ------ ------ ------
2. ASSUMING MANAGEMENT FEE OF 0%
An advisory fee of 0% would be paid if the Portfolio's performance (net of all
fees and expenses) was more than 3.0 percentage points lower than the benchmark
index.
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL ANNUAL
FEES FUND
(FEES PAID DIRECTLY MANAGEMENT DISTRIBUTION OTHER OPERATING
FROM YOUR INVESTMENT) FEES (12B-1) FEES EXPENSES(1,2) EXPENSES
- --------------------- ---- ------------ ------------- --------
<S> <C> <C> <C> <C>
None 0.00% None 3.48% 3.48%
---- ---- ---- ---- ----
</TABLE>
The Fulcrum Trust 5
<PAGE>
EXAMPLE. The purpose of this example is to assist investors in comparing the
cost of investing in the Portfolio with the cost of investing in other mutual
funds. Your actual costs may be higher or lower. A shareholder would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
an advisory fee of 0%, and (3) redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$357 $1,086 $1,835 $3,806
---- ------ ------ ------
3. ASSUMING MANAGEMENT FEE OF 2.00% An advisory fee of 2.00% would be paid if
the Portfolio's performance (net of all fees and expenses, including the 2.00%
advisory fee) was between 1.5 and 3.0 percentage points better than the
benchmark index.
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL ANNUAL
FEES FUND
(FEES PAID DIRECTLY MANAGEMENT DISTRIBUTION OTHER OPERATING
FROM YOUR INVESTMENT) FEES (12B-1) FEES EXPENSES(1,2) EXPENSES
- --------------------- ---- ------------ ------------- --------
<S> <C> <C> <C> <C>
None 2.00% None 3.48% 5.48%
---- ----- ---- ----- -----
</TABLE>
EXAMPLE. The purpose of this example is to assist investors in comparing the
cost of investing in the Portfolio with the cost of investing in other mutual
funds. Your actual costs may be higher or lower. A shareholder would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
an advisory fee of 2%, and (3) redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$562 $1,675 $2,774 $5,464
---- ------ ------ ------
6 The Fulcrum Trust
<PAGE>
4. ASSUMING MANAGEMENT FEE OF 4.00%
An advisory fee of 4.00% would be paid if the Portfolio's performance (net of
all fees and expenses, including the 4.00% advisory fee) was at least 7.5
percentage points better than the benchmark index.
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL ANNUAL
FEES FUND
(FEES PAID DIRECTLY MANAGEMENT DISTRIBUTION OTHER OPERATING
FROM YOUR INVESTMENT) FEES (12B-1) FEES EXPENSES(1,2) EXPENSES
- --------------------- ---- ------------ ------------- --------
<S> <C> <C> <C> <C>
None 4.00% None 3.48% 7.48%
---- ----- ---- ----- -----
</TABLE>
EXAMPLE. The purpose of this example is to assist investors in comparing the
cost of investing in the Portfolio with the cost of investing in other mutual
funds. Your actual costs may be higher or lower. A shareholder would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
an advisory fee of 4%, and (3) redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$767 $2,239 $3,634 $6,809
---- ------ ------ ------
(1) Actual 1999 "other expense" were less than these shown in the above charts
because of a voluntary expense limitation agreed to by Allmerica Financial
Investment Management Services, Inc. ("AFIMS"), investment manager of the Trust.
AFIMS currently limits the "other expenses" to an annual rate of 1.50% of
average daily net assets for the Portfolio through July 1, 2000. AFIMS has
agreed to keep its limitation in place through June 30, 2000, but it may
discontinue this limitation at any time after that date.
(2) Subject to certain limitations discussed in "Expense Limitations", the
Portfolio will reimburse AFIMS for any portfolio expenses it reimbursed pursuant
to the expense limitation for the two years following the date that the AFIMS
expense limitation ends. The Portfolio's obligation to reimburse AFIMS for 2000
Expense Limitations will expire on July 1, 2002.
The Fulcrum Trust 7
<PAGE>
[GRAPHIC] DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
The principal risks of investing in the Portfolio and the factors likely to
cause the value of your investment in the Portfolio to decline are described
below. The principal risks applicable to the Portfolio are identified under
"Objective, Strategies and Risks." There are also many factors that could cause
the value of your investment in the Portfolio to decline which are not described
here. The price per share of the Portfolio will change daily based on market
conditions and other factors. It is important to remember that there is no
guarantee that the Portfolio will achieve its investment objective, and an
investor in the Portfolio could lose money.
CREDIT RISK
Credit Risk is the risk that the issuer of a fixed income security will not be
able to pay principal and interest when due. There are different levels of
credit risk. A Portfolio that invests in lower-rated securities has a higher
level of credit risk. Lower-rated or unrated securities of equivalent quality,
generally known as junk bonds, have very high levels of credit risk. Junk bonds
are considered to be speculative in their capacity to pay interest and repay
principal. During periods of market declines, junk bonds could become less
liquid, meaning that they will be harder to value or sell at a fair price.
Securities that are highly rated have lower levels of credit risk. The price of
a fixed income security can be expected to fall if the issuer defaults on its
obligations to pay principal or interest, the rating agencies downgrade the
issuer's credit rating or there is negative news that affects the market's
perception of the issuer's credit risk.
8 The Fulcrum Trust
<PAGE>
EMERGING MARKETS RISK
Investments in emerging markets securities involve all of the risks of
investments in foreign securities, and also have additional risks. The markets
of developing countries have been more volatile than the markets of developed
countries with more mature economies. Many emerging markets companies in the
early stages of development are dependent on a small number of products and lack
substantial capital reserves. In addition, emerging markets often have less
developed legal and financial systems. These markets often have provided
significantly higher or lower rates of return than developed markets and usually
carry higher risks to investors than securities of companies in developed
countries.
FOREIGN INVESTMENT RISK
Investing in foreign securities involves risks relating to political, social and
economic developments abroad, as well as risks resulting from the differences
between the regulations to which U.S. and foreign issuers and markets are
subject. These risks may include the seizure by the government of company
assets, excessive taxation, withholding taxes on dividends and interest,
limitations on the use or transfer of portfolio assets, and political or social
instability. In the event of nationalization, expropriation or other
confiscation, a Portfolio could lose its entire investment. A Portfolio
investing in foreign securities may experience rapid changes in value. One
reason for this volatility is that the securities markets of many foreign
countries are relatively small, with a limited number of companies representing
a small number of industries. Enforcing legal rights may be difficult, costly
and slow in foreign countries. Also, foreign companies may not be subject to
governmental supervision or accounting standards comparable to those applicable
to U.S. companies, and there may be less public information about their
operations.
INTEREST RATE RISK
When interest rates rise, the prices of fixed income securities held by a
Portfolio will generally fall. Conversely, when interest rates fall, the prices
of fixed income securities will generally rise. Even a Portfolio that invests in
the highest quality debt securities is subject to interest rate risk. Interest
rate risk usually will affect the price of a fixed income security more if the
security has a longer maturity. Fixed income securities with longer maturities
will therefore be more volatile than other fixed income securities with shorter
maturities.
INVESTMENT MANAGEMENT RISK
Investment management risk is the risk that a Portfolio does not achieve its
investment objective, even though the Portfolio Manager uses various investment
strategies and techniques.
LIQUIDITY RISK
This is the risk that a Portfolio will not be able to sell a security at a
reasonable price because there are too few people who actively buy and sell, or
trade, that security on a regular basis. Liquidity risk increases for a
Portfolio investing in foreign investments (especially emerging markets
securities), smaller companies, lower credit quality bonds (also called junk
bonds), restricted securities, over-the-counter securities and derivatives.
MARKET RISK
This is the risk that the price of a security held by a Portfolio will fall due
to changing economic, political or market conditions or to factors affecting
investor psychology.
PREPAYMENT RISK
Mortgage-backed securities may not have a stated maturity, and their expected
maturities may vary when interest rates rise or fall. When interest rates fall,
homeowners are more likely to prepay their mortgage loans which may result in an
unforeseen loss of future interest income to a Portfolio. Also, because
prepayments increase when interest rates fall, the prices of mortgage-backed
securities do not increase as much as other fixed income securities when
interest rates fall. When interest rates rise, homeowners are less likely to
prepay their mortgage loans which may lengthen the expected maturity of
mortgage-backed securities causing the price of mortgage-backed securities to
decrease more than prices of other fixed income securities. Asset-backed
securities have prepayment risks similar to mortgage-backed securities. By
investing in collateralized mortgage obligations ("CMOs"), a Portfolio may
manage the prepayment risk of mortgage-backed securities. However, prepayments
may cause the actual maturity of a CMO to be substantially shorter than its
stated maturity.
The Fulcrum Trust 9
<PAGE>
[GRAPHIC] OTHER INVESTMENT STRATEGIES
The section entitled "Objective, Strategies and Risks" describes the investment
objective and the principal investment strategies and risks of the Portfolio.
The investment objective of the Portfolio is fundamental, which means that it
may be changed only with shareholder approval. Unless otherwise indicated, the
Portfolio's practices, policies and programs for achieving its objectives are
not fundamental and thus may be changed by the Board of Trustees without
shareholder approval. The Statement of Additional Information sets forth certain
investment restrictions which are fundamental, and, like the investment
objectives, may be changed only with shareholder approval. There is no guarantee
that the Portfolio will achieve its objective and an investor in the Portfolio
could lose money. Attached is an Appendix illustrating various investment
techniques and strategies that the Portfolio Manager of the Portfolio may
utilize. The Portfolio may at times use the following strategies:
DERIVATIVE INVESTMENTS. Instead of investing in the types of portfolio
securities described in the section entitled "Objective, Strategies and Risks",
the Portfolio may buy or sell a variety of "derivative" investments to gain
exposure to particular securities or markets. Derivatives are financial
contracts whose value depends on, or is derived from, the value of an underlying
asset, reference rate or index. The Portfolio's Portfolio Manager will sometimes
use derivatives as part of a strategy designed to reduce other risks and
sometimes will use derivatives for leverage, which increases opportunities for
gain but also involves greater risk.
FOREIGN SECURITIES. The Portfolio may invest all or a substantial part of its
portfolio in securities of companies that are located or primarily doing
business in a foreign country. A company is considered to be located in a
foreign country if it is organized under the laws of, or has a principal office
in, that country. A company is considered as primarily doing business in a
country if (i) the company derives at least 50% of its gross revenues or profits
from either goods or services produced or sold in the country or (ii) at least
50% of the company's assets are situated in the country. The Portfolio may
invest in foreign securities either directly or indirectly through the use of
depository receipts, such as American Depository Receipts or ADRs. Depository
receipts are generally issued by banks or trust companies and evidence ownership
of underlying foreign securities. An ADR may be sponsored by the issuer of the
underlying foreign security or it may be issued in unsponsored form. The holder
of a sponsored ADR is likely to receive more frequent and extensive financial
disclosure concerning the foreign issuer than the holder of an unsponsored ADR
and generally will bear lower transaction charges.
BELOW INVESTMENT GRADE SECURITIES. The Portfolio may invest up to 50% of its
assets in debt securities that are below investment grade (i.e. rated BB or
lower by Standard & Poor's, rated Ba or lower by Moody's, or unrated but
determined by the Portfolio Manager to be of similar quality). These securities
are commonly referred to as "junk bonds" or high yield securities. These
securities are considered to be speculative with respect to the issuer's
capacity to pay interest and repay principal.
10 The Fulcrum Trust
<PAGE>
LENDING PORTFOLIO SECURITIES. To realize additional income, the Portfolio may
lend securities with a value of up to 33% of its total assets to unaffiliated
broker-dealers or institutional investors. Any loan will be secured by
collateral at least equal to the value of the security loaned. While any such
loan is outstanding, the Portfolio will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less any rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. The Portfolio will have the right to call
each loan and obtain the securities. Lending portfolio securities involves
possible delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral.
ILLIQUID SECURITIES. The Portfolio may invest up to 15% of its net assets in
securities for which there is no readily available market ("illiquid
securities"), which would include repurchase agreements having more than 7 days
to maturity. A considerable period of time may elapse between the Portfolio's
decision to dispose of such securities and the time when the Portfolio is able
to dispose of them, during which time the value of the securities could decline.
The SEC has adopted Rule 144A which permits resale among certain institutional
investors of certain unregistered securities which have been deemed liquid.
TEMPORARY DEFENSIVE STRATEGIES. At times the Portfolio Manager may determine
that market conditions make it desirable temporarily to suspend the Portfolio's
normal investment activities. This is when the Portfolio may temporarily invest
in a variety of lower-risk securities, such as U.S. Government and other high
quality bonds and short-term debt obligations. Such strategies attempt to reduce
changes in the value of the Portfolio's shares. The Portfolio may fail to profit
from favorable developments affecting its normal investments while these
strategies are in effect.
FREQUENT TRADING. The Portfolio from time to time may engage in active and
frequent trading to achieve its investment objective. Frequent trading increases
transaction costs, which could detract from the Portfolio's performance.
The Fulcrum Trust 11
<PAGE>
[GRAPHIC] MANAGEMENT OF THE PORTFOLIO
THE TRUST. The business and affairs of the Trust are managed under the direction
of the Board of Trustees.
MANAGER. Allmerica Financial Investment Management Services, Inc. ("AFIMS" or
the "Manager") serves as overall Manager of the Trust. As Manager, AFIMS is
responsible for general administration of the Trust as well as monitoring and
evaluating the performance of the Portfolio Manager. AFIMS, a Massachusetts
corporation, is registered with the Securities and Exchange Commission as an
investment adviser. AFIMS is located at 440 Lincoln Street, Worcester,
Massachusetts 01653 and is an indirect, wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"). AFC is the parent company of the two life
insurance companies, Allmerica Financial Life Insurance and Annuity Company and
First Allmerica Financial Life Insurance Company ("FAFLIC"), which utilize the
Trust as an underlying fund for their variable contracts.
PORTFOLIO MANAGER. The Portfolio Manager has been hired to manage the
investments of the Portfolio.
The Portfolio Manager's activities are subject to general oversight by the
Trustees and AFIMS. Although the Trustees and AFIMS do not evaluate the
investment merits of the Portfolio Manager specific securities selections, they
do review the Portfolio Manager's overall performance.
The following table provides information about the Portfolio's Portfolio
Manager:
PORTFOLIO MANAGER NAME AND ADDRESS EXPERIENCE
---------------------------------- ----------
STRATEGIC INCOME PORTFOLIO - Began operations in 1967
Allmerica Asset Management, Inc. - Manages assets of approximately
440 Lincoln Street $13.3 billion as of December
Worcester, MA 01653 31, 1999
- Provides investment management
services to insurance
companies, pension plans and
investment companies or mutual
funds backing variable
insurance products
------------------
12 The Fulcrum Trust
<PAGE>
The following individual is primarily responsible for the day-to-day management
of the Portfolios:
<TABLE>
<CAPTION>
PORTFOLIO NAME, NAME AND TITLE OF
PORTFOLIO MANAGER INDIVIDUAL PORTFOLIO MANAGED BUSINESS EXPERIENCE
NAME MANAGER(S) PORTFOLIO SINCE FOR THE PAST FIVE YEARS
- ---- ---------- --------------- -----------------------
<S> <C> <C> <C>
STRATEGIC INCOME PORTFOLIO Richard J. Litchfield 2000 Mr. Litchfield has served as
a portfolio manager at Allmerica
Asset Management, Inc. since 1995. He
was previously an analyst at Keystone
Investments, Inc. from 1989-1995.
</TABLE>
The Fulcrum Trust 13
<PAGE>
MANAGEMENT AND PORTFOLIO MANAGEMENT
INVESTMENT ADVISORY FEES
AFIMS serves as the overall manager of the Portfolio, the Portfolio Manager
handles the day-to-day investment management of the Portfolio. For these
services, the Portfolio pays an overall management fee, computed and accrued
daily and paid monthly, based on its average daily net assets. The overall fee
varies based on the performance of the Portfolio (after expenses) compared to
that of an appropriate benchmark. The Portfolio Manager receives 80% of the fee,
and AFIMS receives the remaining 20%.
FIXED ADVISORY FEE FOR THE FIRST 12 FULL CALENDAR MONTHS. For the period
beginning on the effective date of a Portfolio Manager Agreement with a new
Portfolio Manager (or, in the case of a Portfolio that has had only one
Portfolio Manager, the day on which the Portfolio began investment operations)
and ending with the last day of the twelfth full calendar month thereafter,
- the Portfolio Manager will be paid a monthly advisory fee calculated at an
annual rate of 0.80% of the Portfolio's average daily net assets.
PERFORMANCE-BASED FEE. After the first 12 full calendar months with a new
Portfolio Manager as described above, the Portfolio pays, at the end of each
month:
- a monthly advisory fee equal to a BASIC FEE plus or minus an INCENTIVE FEE.
(As explained below, the fee might be reduced if absolute performance is
negative.)
The monthly Basic Fee equals one-twelfth of the annual Basic Fee rate of 2.0%
multiplied by average daily net assets over the previous 12 months. The
incentive fee rate ranges from -2.0% to +2.0% on an annual basis, depending on
a comparison of the Portfolio's performance (reflecting a deduction of the
Portfolio expenses) and the performance of a selected benchmark index over the
past 12 months. The monthly Incentive Fee, like the monthly Basic Fee, is
calculated by multiplying one-twelfth of the Incentive Fee rate on an annual
basis by the average daily net assets over the previous 12 months.
Accordingly, the Total Fee could range from 0.0% to an annual rate of 4.0%,
depending on performance.
- The PERFORMANCE OF THE PORTFOLIO is calculated by first determining the
change in the Portfolio's net asset value per share during the previous 12
months, assuming the reinvestment of distributions during that period, and
then expressing this amount as a percentage of the net asset value per share
at the beginning of the period. Net asset value per share is calculated by
dividing the value of the securities held by the Portfolio plus any cash or
other assets minus all liabilities including accrued advisory fees and the
other expenses, by the total number of shares outstanding at the time.
- The PERFORMANCE OF THE SELECTED BENCHMARK INDEX is calculated as the sum of
the change in the level of the index during the previous 12 months, plus the
value of any dividends or distributions made by the companies whose securities
comprise the index accumulated to the end of the period, and then expressing
that amount as a percentage of the index at the beginning of the period.
No Incentive Fee will be paid if the Portfolio's performance equals the
targeted performance-selected benchmark index plus 2.25 percentage points. The
maximum fee will be paid if performance is 5.25 percentage points higher than
the target (i.e., 7.5 percentage points higher than the selected benchmark
index). No fee will be paid if performance is 5.25 percentage points lower
than the target, (i.e., more than 3 percentage points below the selected
benchmark index). The chart below further explains the Incentive Fee at
various performance levels.
14 The Fulcrum Trust
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE POINT DIFFERENCE BETWEEN PERFORMANCE OF THE PORTFOLIO
(NET OF EXPENSES INCLUDING BASIC FEE AND INCENTIVE FEE)
AND CHANGE IN SELECTED BENCHMARK INDEX TOTAL
BASIC FEE (%) INCENTIVE FEE ADVISORY FEE
----------- ------------- ------------
<S> <C> <C> <C>
+7.5 or greater 2.0 2.0 4.0
--------------- --- ---- ---
+6.0 or greater, but less than +7.5 2.0 1.5 3.5
----------------------------------- --- ---- ---
+4.5 or greater, but less than +6.0 2.0 1.0 3.0
----------------------------------- --- ---- ---
+3.0 or greater, but less than +4.5 2.0 0.5 2.5
----------------------------------- --- ---- ---
+1.5 or greater, but less than +3.0 2.0 0.0 2.0
----------------------------------- --- ---- ---
0.0 or greater, but less than +1.5 2.0 -0.5 1.5
---------------------------------- --- ---- ---
-1.5 or greater, but less than 0.0 2.0 -1.0 1.0
---------------------------------- --- ---- ---
-3.0 or greater, but less than -1.5 2.0 -1.5 0.5
----------------------------------- --- ---- ---
Less than -3.0 2.0 -2.0 0.0
-------------- --- ---- ---
</TABLE>
MAXIMUM FEE IF PERFORMANCE IS NEGATIVE.
- IF THE ABSOLUTE PERFORMANCE OF THE PORTFOLIO (AFTER PAYMENT OF ALL EXPENSES,
INCLUDING THE BASIC FEE AND ANY INCENTIVE FEE) IS NEGATIVE, the monthly
advisory fee will be the lesser of the fee calculated pursuant to the above
schedule or the alternative monthly advisory fee described below, which under
certain circumstances results in the Portfolio paying either no advisory fee or
a lower monthly advisory fee than under the performance fee schedule above.
- IF THE PORTFOLIO'S PERFORMANCE (AFTER PAYMENT OF ALL EXPENSES INCLUDING
ADVISORY FEES) IS NEGATIVE AND DOES NOT EXCEED THE SELECTED BENCHMARK BY SIX
PERCENTAGE POINTS (on an annual basis), no monthly advisory fee will be paid.
- IF THE PORTFOLIO'S PERFORMANCE (AFTER PAYMENT OF ALL EXPENSES INCLUDING
ADVISORY FEES) IS NEGATIVE AND DOES NOT EXCEED THE SELECTED BENCHMARK BY
TWELVE PERCENTAGE POINTS BUT DOES EXCEED THE SELECTED BENCHMARK BY SIX
PERCENTAGE POINTS (on an annual basis), the alternate monthly advisory fee will
be based on an annual rate of 1.0% of average daily net assets over the previous
12 months.
- - IF THE PERFORMANCE OF THE PORTFOLIO (AFTER PAYMENT OF ALL EXPENSES INCLUDING
ADVISORY FEES) IS NEGATIVE BUT EXCEEDS THE SELECTED BENCHMARK BY TWELVE
PERCENTAGE POINTS OR MORE (on an annual basis), the alternative monthly
advisory fee will be based on an annual rate of 2.0% of average daily net
assets over the previous 12 months.
SIZE OF FEE.
- The Basic Fee payable by the Portfolio is at a rate higher than the
investment advisory fees paid by most other investment companies. If the
Portfolio OUTPERFORMS the selected benchmark by 3.0 percentage points or more,
the advisory fee payable by the Portfolio may further exceed those paid by
other investment companies.
- If the Portfolio UNDERPERFORMS the selected benchmark, the advisory fee paid
by the Portfolio may be less than those paid by other investment companies.
- If, during the applicable performance period, the Portfolio UNDERPERFORMS the
selected benchmark by three or more percentage points, the Portfolio will not
pay any advisory fee.
PERFORMANCE BENCHMARK.
As described above, total advisory fees paid to the Portfolio Manager for
advising the Portfolio is based on the performance of the Portfolio managed
relative to a market benchmark selected in light of the investment objective and
policies of the Portfolio. The performance benchmark selected for the Portfolio
is the Lehman Brothers Aggregate Bond Index, which is described in more detail
in the section entitled, "Objective, Strategies and Risks".
The Fulcrum Trust 15
<PAGE>
EXPENSE LIMITATIONS
EXPENSE LIMITATIONS. AFIMS has agreed to limit operating expenses through June
30, 2000. While this limitation is in effect, AFIMS will reimburse the
Portfolio to the extent that its "other expenses" (i.e., expenses other than
management fees) exceed the expense limitations of 1.50% (expressed as an
annualized percentage of average daily net assets). There is no guarantee that
any expense limitation will be in place after June 30, 2000.
AFIMS has agreed to pay any amount due for a calendar month not later than the
15th day of the following calendar month (with any annual adjustment to be made
not later than January 15).
REIMBURSEMENT PROVISION. The Portfolio is obligated to reimburse AFIMS for any
payments it made to the Portfolio under the expense limitation and other expense
limitations in place in previous years, provided that the Portfolio need only
reimburse AFIMS (1) to the extent it can do so and still keep "other expenses"
under the limitations that were in place and (2) during the two calendar years
after the expense limitation payments were made by AFIMS. In particular,
reimbursement for any payments due to the expense limitation in effect during
the 1998 shall be paid by the Portfolio only to the extent that the Portfolio
can do so prior to December 31, 2000 without causing its "other expenses" to
exceed 1.20% as an annualized percentage of the Portfolio's average daily net
assets. Reimbursement for any payments due to the expense limitation in effect
during 1999 shall be paid by the Portfolio only to the extent that the Portfolio
can do so prior to December 31, 2001 without causing its "other expenses" to
exceed the current expense limitation of 1.50% applicable. Reimbursement for any
payments due to the expense limitation in effect during 2000 shall be paid by
the Portfolio only to the extent that the Portfolio can do so prior to December
31, 2002 without causing its "other expenses" to exceed the current expense
limitation of 1.50%.
16 The Fulcrum Trust
<PAGE>
PRICING, PURCHASE AND REDEMPTION
PRICING OF SHARES
The price of one share of the Portfolio is equal to the Portfolio's "net asset
value" or "NAV" per share. NAV is computed once daily at the close of regular
trading on the New York Stock Exchange each day the Exchange is open - normally
4:00 p.m. Eastern Time. Net asset value per share is calculated by dividing the
aggregate value of each Portfolio's assets less all liabilities by the number of
each Portfolio's outstanding shares.
The Portfolio's assets are valued primarily on the basis of market quotations.
Short-term debt securities with remaining maturities of 60 days or less are
valued on the basis of amortized cost. Other debt securities are generally
valued based on price quotes obtained from pricing services or broker-dealers.
Foreign securities are valued on the basis of quotations from the primary market
on which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. In addition, if quotations are not
available for any security, or if the values of foreign securities have been
materially affected by events occurring after the closing of a foreign market,
assets may be valued by another method that the Board of Trustees believes
accurately reflects fair value.
PURCHASE OF SHARES
Shares of the Portfolio are sold at the first net asset value per share
calculated after the Trust (or its agent) receives the purchase order. The Trust
does not charge any sales charge or sales load. The Trust is intended to be a
funding vehicle for variable annuity and variable life insurance contracts
offered by both affiliated and unaffiliated insurance companies and for certain
qualified pension and retirement plans. Because of differences in tax treatment
and other considerations, however, it is possible that the interests of contract
owners and plan participants might at some time be in conflict. Accordingly, the
Board of Trustees will monitor events to identify any material irreconcilable
conflicts and to determine what action, if any, should be taken in response to
any such conflict.
REDEMPTION OF SHARES
Shares of the Portfolio may be redeemed on any business day. The Trust does not
charge any sales charge or sales load. Shares of the Portfolio are redeemed at
the first net asset value per share calculated after the Trust (or its agent)
receives a proper redemption request or sooner if required by law. The right of
redemption may be suspended by the Trust or the payment date postponed beyond
seven days:
- - when the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- - when an emergency exists, as determined by the Securities and Exchange
Commission; or
- - whenever the Securities and Exchange Commission has by order allowed such
suspension or postponement for the protection of shareholders.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Portfolio to make payment wholly
or partly in cash, the Portfolio may:
- pay the redemption price in whole or in part by a distribution in kind of
securities from the portfolios, in lieu of cash. (If shares are redeemed in
kind, the redeeming shareholder might incur brokerage costs in converting the
assets into cash.)
The Fulcrum Trust 17
<PAGE>
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
At least annually, the Portfolio declares as dividends substantially all of its
net income, if any, and distributes all of its net realized capital gains. All
dividends and distributions are automatically reinvested in additional shares of
the Portfolio.
FEDERAL INCOME TAXES
The Trust seeks to comply with the provision of the Internal Revenue Code
applicable to regulated investment companies so that the Trust will not be
subject to federal income tax. Under current tax law, dividend or capital gain
distributions from the Portfolio are not currently taxable when left to
accumulate within a variable annuity or variable life insurance contract.
Withdrawals from a contract generally are subject to ordinary income tax and, in
many cases, to an additional 10% penalty tax on withdrawals before age 59 1/2.
If you own or are considering buying a variable contract that invests in the
Portfolio, you should consult the variable contract prospectus for a discussion
of the tax considerations relevant to investing in the Portfolio through that
variable contract.
The tax laws and regulations that apply to qualified retirement plans are
complex and vary according to the type of plan and its terms and conditions. If
you participate in a qualified retirement plan that invests in the Portfolio,
you should consult a qualified tax adviser to learn about your specific tax
situation before investing in the Portfolio or redeeming Portfolio shares.
18 The Fulcrum Trust
<PAGE>
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The Fulcrum Trust 19
<PAGE>
This page is intentionally left blank.
20 The Fulcrum Trust
<PAGE>
[GRAPHIC] FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Portfolio's financial performance for the life of the Portfolio. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in the Portfolio (assuming reinvestment of all dividends
and distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Portfolio's financial statements, are included
in the Statement of Additional Information or annual report, which is available
upon request.
The Fulcrum Trust 21
<PAGE>
The Fulcrum Trust
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
--------------------------------------------- -------------------------------------------------------
Net Realized
and
Net Asset Net Unrealized Dividends Distributions
Value Investment Gain (Loss) Total from from Net from Net
Beginning Income on Investment Investment Realized Return of Total
Year Ended December 31, of Year (Loss)(/2/) Investments Operations Income Capital Gains Capital Distributions
- ----------------------- --------- ----------- ------------ ---------- ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Strategic Income
Portfolio(/1/)
1999 $10.22 $0.45 $(0.77) $(0.32) $(0.45) $ -- (/5/) $ -- $(0.45)
1998(/3/) 9.88 0.25 0.39 0.64 (0.02) (0.28) -- (0.30)
1997 9.98 0.36 (0.30) 0.06 (0.11) (0.05) -- (0.16)
1996(/4/) 10.00 (0.19) 0.23 0.04 -- -- (0.06) (0.06)
</TABLE>
- ------------------
* Annualized
** Not Annualized
+ Figure is net of the voluntary expense waiver by the Adviser. Excluding
this waiver, the ratio of Management fees to average net assets would have
been 0.35% and 0.67% for the years ended December 31, 1999 and December 31,
1998, respectively.
(A) Including reimbursements and waivers of certain operating expenses.
(B) Excluding reimbursements and waivers of certain operating expenses.
(1) The Strategic Income Portfolio commenced operation on February 1, 1996.
(2) Net investment income (loss) per share before reimbursement of certain
operating expenses by the investment adviser were ($0.26) for the year
ended December 31, 1999, ($0.11) in 1998, ($0.14) in 1997, and ($0.63) in
1996 for the Strategic Income Portfolio.
(3) Total return measures the change in the value of an investment for the
period indicated. For the year ended December 31, 1998, the total return
includes a capital infusion. Absent the infusion, the total return for the
Strategic Income Portfolio would have been 6.12%.
(4) For the period ended December 31, 1996, the total return includes a capital
infusion. Absent the infusion, the total return for the Strategic Income
Portfolio would have been (4.49)%.
(5) Distribution is less than $0.005 per share.
------------------------------------------------------
F-16
<PAGE>
The Fulcrum Trust
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-----------------------------------------------------------------------
Ratios To Average Net Assets
-----------------------------------------------
Net
Increase
(Decrease) Net Asset Net Assets Net
in Value End of Investment Operating Portfolio
Net Asset End of Total Year Income (Loss) Expenses Management Turnover
Value Year Returns(/3/)(/4/) (000's) (A) (B) (A) (B) Fee Rate
- ---------- --------- ----------------- ---------- ------ ------ ----- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.77) $9.45 (3.12)% $1,540 4.15% 2.04% 1.50% 3.48% 0.23%+ 136%
0.34 10.22 6.53% 2,119 3.24% (1.74)% 2.18% 7.16% 0.47%+ 407%
(0.10) 9.88 0.60% 2,700 3.67% (1.39)% 1.61% 6.68% 0.41% 713%
(0.02) 9.98 0.44%** 1,107 (2.15)%* (7.02)%* 7.37%* 12.30%* 0.80%* 212%
</TABLE>
F-17
<PAGE>
APPENDIX [GRAPHIC]
INVESTMENT TECHNIQUES AND STRATEGIES
In managing the Portfolios of investments, the Trust may make use of the
following investment techniques and strategies:
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
COMMERCIAL PAPER
DEBT SECURITIES
FOREIGN DEBT SECURITIES
FOREIGN SECURITIES
FUTURES CONTRACTS
ILLIQUID SECURITIES
INDEXED SECURITIES
INVESTMENTS IN GOLD AND OTHER PRECIOUS METALS
LENDING PORTFOLIO SECURITIES
LEVERAGE
MORTGAGE-BACKED SECURITIES
OPTIONS
OTHER ASSET-BACKED SECURITIES
OTHER INVESTMENT COMPANIES
REPURCHASE AGREEMENTS
RESTRICTED SECURITIES
REVERSE REPURCHASE AGREEMENTS
SHORT SALES AGAINST THE BOX
SHORT SALES
U.S. GOVERNMENT SECURITIES
VARIABLE AND FLOATING RATE SECURITIES
WARRANTS
22 The Fulcrum Trust
<PAGE>
- --------------------------------------------------------------------------------
The Fulcrum Trust
The Strategic Income Portfolio
The Trust's Statement of Additional Information (SAI) and annual and semi-annual
reports to shareholders include additional information about the Portfolio. The
SAI and the financial statements included in the Portfolio's most recent annual
report to shareholders are incorporated by reference into this Prospectus, which
means they are part of this Prospectus for legal purposes. The Trust's annual
report discusses the market conditions and investment strategies that
significantly affected each Portfolio's performance during its last fiscal
year. You may get free copies of these materials, request other information
about the Trust or make shareholder inquiries by calling 1-800-917-1909.
You may review and copy information about the Trust, including its SAI, at the
Securities and Exchange Commission's public reference room in Washington, D.C.
You may call the Commission at 1-800-SEC-0330 for information about the
operation of the public reference room. You may also access reports and other
information about the Trust on the Commission's Internet site at
http://www.sec.gov. You may get copies of this information, with payment of a
duplication fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. You may need to refer to the Trust's file number
under the Investment Company Act, which is 811-08278. This Prospectus is
intended for use with a variable contract or qualified plan.
THE
FULCRUM
TRUST
440 Lincoln Street, Worcester, Massachusetts 01653
(800) 917-1909
<PAGE>
THE FULCRUM TRUST
PROSPECTUS
May 1, 2000
This prospectus offers shares of four investment
Portfolios of the Trust designed to provide the
underlying investment vehicles for insurance
contracts and qualified retirement plan
accounts:
THE GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
THE INTERNATIONAL GROWTH PORTFOLIO
THE GROWTH PORTFOLIO
THE VALUE PORTFOLIO
This Prospectus explains what you should know about each of the Portfolios
before you invest. Please read it carefully before you invest.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE
FULCRUM
TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(800) 917-1909
<PAGE>
TABLE OF CONTENTS
PORTFOLIO SUMMARIES 3
Objectives, Strategies and Risks 4
The Global Interactive/Telecomm Portfolio 4
The International Growth Portfolio 5
The Growth Portfolio 6
The Value Portfolio 7
EXPENSE SUMMARY 8
DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 12
OTHER INVESTMENT STRATEGIES 15
MANAGEMENT OF THE PORTFOLIOS 17
MANAGEMENT AND PORTFOLIO MANAGEMENT 20
INVESTMENT ADVISORY FEES
EXPENSE LIMITATIONS 23
PRICING, PURCHASE AND REDEMPTION 24
DISTRIBUTIONS AND TAXES 25
FINANCIAL HIGHLIGHTS 27
APPENDIX 30
LEGEND
Performance [GRAPHIC]
Investment [GRAPHIC]
Objectives
Financial [GRAPHIC]
Information
Management [GRAPHIC]
of Fund
Risk [GRAPHIC]
Investment [GRAPHIC]
Strategies
The Fulcrum Trust 2
<PAGE>
PORTFOLIO SUMMARIES
The Fulcrum Trust provides a range of investment options through the four
separate investment Portfolios described in this Prospectus. Shares of the
Portfolios of the Trust are sold exclusively to (1) life insurance company
separate accounts (the "Separate Accounts") to serve as the underlying
investment medium for variable annuity and variable life insurance contracts;
(2) qualified retirement plans, as permitted by Treasury Regulations; and (3)
life insurance companies and advisers to the Portfolios and their affiliates.
Shares will not be offered directly to the public. As of the date of this
prospectus, The Fulcrum Trust offers a fifth investment Portfolio, the Strategic
Income Portfolio. That Portfolio, which is expected to be liquidated this year,
is described in a separate prospectus.
Allmerica Financial Investment Management Services, Inc. as Manager is
responsible for managing the Trust's daily business and has general
responsibility for the management of the investments of the Portfolios. The
Portfolio Managers have been hired to manage the investments of the Portfolios.
The following summaries describe each Portfolio's investment objective and
principal investment strategies and identify the principal risks of investing in
the Portfolio. The principal risks are discussed in more detail under
"Description of Principal Investment Risks". The bar charts show how investment
returns of the shares of a Portfolio have varied for the life of the Portfolio.
The table following each bar chart shows how the Portfolio's average annual
returns for the last one year and life of the Portfolio compare to those of a
broad-based securities market index. PAST PERFORMANCE DOES NOT NECESSARILY
INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE. The bar charts and tables
give some indication of the risks of investing in each Portfolio by showing
changes in the Portfolio's performance. The bar charts and tables do not reflect
expenses associated with the variable insurance product that you are purchasing.
If those expenses had been reflected, the performance shown would have been
lower.
The Fulcrum Trust 3
<PAGE>
OBJECTIVES, STRATEGIES AND RISKS
THE GLOBAL INTERACTIVE/
TELECOMM PORTFOLIO
[GRAPHIC] PORTFOLIO MANAGER: GAMCO INVESTORS, INC.
[GRAPHIC] INVESTMENT OBJECTIVE: The Portfolio seeks to make money for investors
primarily by investing globally in equity securities of companies engaged in the
development, manufacture or sale of interactive and/or telecommunications
services and products.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGIES: The Portfolio normally invests
primarily in common stocks and other equity securities of companies
participating in technological advances in interactive services, companies
providing products that are accessible in the home or office through consumer
electronics devices, telecommunications companies, and companies outside of the
telecommunications industry which are expected to benefit from development in
the telecommunications industry. The Portfolio may also invest in debt
securities.
In analyzing companies for investment, the Portfolio Manager looks for several
characteristics including: above-average per share earnings growth; sound
financial and accounting policies; strong competitive advantages; and effective
research, product development and marketing.
The Portfolio normally invests in at least three different countries, including
the United States. No more than 40% of the Portfolio's assets will be invested
in any one country except the United States.
[GRAPHIC] PRINCIPAL RISKS:
- - Company Risk
- - Currency Risk
- - Derivatives Risk
- - Emerging Markets Risk
- - Foreign Investment Risk
- - Investment Management Risk
- - Liquidity Risk
- - Market Risk
- - Technology Risk
See "Description of Principal Investment Risks."
The bar chart and table below do not reflect expenses at the insurance product
level, and if they did, the performance shown would have been lower.
ANNUAL TOTAL RETURN [GRAPHIC]
[GRAPH]
1997 - 40.24%
1998 - 30.27%
1999 - 56.89%
During the period shown above, the highest quarterly return was 22.54% for the
quarter ended December 31, 1998 and the lowest was (12.48%) for the quarter
ended September 30, 1998.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending PAST SINCE INCEPTION
December 31, 1999) ONE YEAR (FEBRUARY 1, 1996)
- ------------------ -------- ------------------
Portfolio Shares 56.89% 31.03%
- ---------------- ------ ------
S&P 500 Index* 21.03% 25.94%
- -------------- ------ ------
* The S&P 500-Registered Trademark- Index, reflecting reinvestment of dividends,
is an unmanaged index of 500 leading stocks. S&P 500 Index is a registered
trademark of the Standard & Poor's Corporation.
4 The Fulcrum Trust
<PAGE>
OBJECTIVES, STRATEGIES AND RISKS
THE INTERNATIONAL GROWTH PORTFOLIO
[GRAPHIC] PORTFOLIO MANAGER: BEE & ASSOCIATES, INCORPORATED
[GRAPHIC] INVESTMENT OBJECTIVE: The Portfolio seeks to make money for investors
by investing internationally for long-term capital appreciation, primarily in
equity securities.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGIES: The Portfolio normally invests
primarily in common stocks and other equity securities of foreign companies. The
Portfolio currently concentrates on companies with market capitalization under
$1 billion. The Portfolio may also invest in debt securities.
The Portfolio generally invests in securities from at least three different
countries. The Portfolio generally does not invest more than 20% of its assets
in any one foreign country, except that it may invest up to 35% of its assets in
each of the following countries: Australia, Canada, France, Germany, Mexico, the
United Kingdom and the United States. The Portfolio currently concentrates in
securities from the more developed countries in the Americas, the Far East and
the Pacific Basin, Australia and Western Europe. The Portfolio, however, can
invest in emerging market countries.
[GRAPHIC] PRINCIPAL RISKS:
- - Company Risk
- - Currency Risk
- - Derivatives Risk
- - Emerging Markets Risk
- - Foreign Investment Risk
- - Investment Management Risk
- - Liquidity Risk
- - Market Risk
See "Description of Principal Investment Risks."
The bar chart and table below do not reflect expenses at the insurance product
level, and if they did, the performance shown would have been lower.
ANNUAL TOTAL RETURN [GRAPHIC]
[GRAPH]
1997 - (5.25)%
1998 - (8.02)%
1999 - 37.26%
During the period shown above, the highest quarterly return was 15.21% for the
quarter ended December 31, 1998 and the lowest was (25.02)% for the quarter
ended September 30, 1998.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending PAST SINCE INCEPTION
December 31, 1999) ONE YEAR (MARCH 26, 1996)
- ------------------ -------- ----------------
Portfolio Shares 37.26% 6.28%
- ---------------- ------ -----
Morgan Stanley 27.31 13.63
EAFE Index*
- ----------
Morgan Stanley
EAFE Small Cap Index** 17.65% ( 3.34%)
- ---------------------- ----- -------
* The Morgan Stanley EAFE Index is an unmanaged index of European, Australian
and Far East stocks.
** Effective December 1, 1999, the Morgan Stanley EAFE Small Cap Index replaced
the Morgan Stanley EAFE Index as the performance benchmark for the Portfolio.
The Morgan Stanley EAFE Small Cap Index is an unmanaged index of European,
Australian and Far East stocks having a market capitalization of between $200
million and $800 million. The Morgan Stanley EAFE index has an average market
cap of more than $6 billion.
The Fulcrum Trust 5
<PAGE>
OBJECTIVES, STRATEGIES AND RISKS
THE GROWTH PORTFOLIO
[GRAPHIC] PORTFOLIO MANAGER: ANALYTIC INVESTORS, INC.
[GRAPHIC] INVESTMENT OBJECTIVE: The Portfolio seeks to make money for investors
by investing primarily in domestic securities selected for their long-term
growth prospects.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGIES: The Portfolio normally invests
primarily in common stocks and other equity securities of U.S. corporations. The
Portfolio may also invest in foreign equity securities and debt securities.
The Portfolio Manager currently uses a proprietary computer model designed to
build a portfolio of stocks. When viewed as a group, the stocks have fundamental
characteristics that the Portfolio Manager considers to be superior to the 500
stocks included in the Standard & Poor's 500 Composite Stock Price Index. The
model seeks to identify a portfolio of stocks with, among other characteristics,
higher than average return on equity and earnings growth at a reasonable price
and positive price momentum over the last 6 to 12 months. The model focuses on
the characteristics of the aggregate portfolio rather than screening for
individual stocks that meet all the desired characteristics. While the Growth
Portfolio may invest in stocks of any company, it normally invests in stocks of
medium to large companies in the S&P 500 (that is, typically companies with a
market capitalization of $15 billion or higher).
[GRAPHIC] PRINCIPAL RISKS:
- - Company Risk
- - Derivatives Risk
- - Investment Management Risk
- - Market Risk
See "Description of Principal Investment Risks."
The bar chart and table below do not reflect expenses at the insurance product
level, and if they did, the performance shown would have been lower.
ANNUAL TOTAL RETURN [GRAPHIC]
[GRAPH]
1997 - 10.24%
1998 - 0.50%
1999 - 20.07%
During the period shown above, the highest quarterly return was 17.98% for the
quarter ended December 31, 1998 and the lowest was (14.95%) for the quarter
ended September 30, 1998.
Analytic Investors, Inc. became the Portfolio Manager of the Portfolio on August
1, 1998. Performance before that date is based on the performance of the
Portfolio's previous Portfolio Manager.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending PAST SINCE INCEPTION
December 31, 1999) ONE YEAR (FEBRUARY 1, 1996)
- ------------------ -------- ------------------
Portfolio Shares 20.07% 9.80%
- ---------------- ------ -----
S&P 500 Index* 21.03% 25.94%
- -------------- ------ ------
* The S&P 500-Registered Trademark- Index, reflecting reinvestment of dividends,
is an unmanaged index of 500 leading stocks. S&P 500-Registered Trademark- Index
is a registered trademark of the Standard & Poor's Corporation.
6 The Fulcrum Trust
<PAGE>
OBJECTIVES, STRATEGIES AND RISKS
THE VALUE PORTFOLIO
[GRAPHIC] PORTFOLIO MANAGER: GAMCO INVESTORS, INC.
[GRAPHIC] INVESTMENT OBJECTIVE: The Portfolio seeks to make money for investors
by investing primarily in companies that the Portfolio Manager believes are
undervalued and that by virtue of anticipated developments may, in the Portfolio
Manager's judgment, achieve significant capital appreciation.
[GRAPHIC] PRINCIPAL INVESTMENT STRATEGIES: The Portfolio normally invests
primarily in common stocks and other equity securities of companies that the
Portfolio Manager believes are selling in the public market at a significant
discount to their private market value. The Portfolio Manager believes a company
may be undervalued when investors fail to recognize the underlying value of its
fixed assets, changes in the economic environment affecting the company,
technological developments affecting the company's products, or other similar
factors. The Portfolio may also invest in debt securities.
[GRAPHIC] PRINCIPAL RISKS:
- - Company Risk
- - Derivatives Risk
- - Investment Management Risk
- - Liquidity Risk
- - Market Risk
See "Description of Principal Investment Risks."
The bar chart and table below do not reflect expenses at the insurance product
level, and if they did, the performance shown would have been lower.
ANNUAL TOTAL RETURN [GRAPHIC]
[GRAPH]
1997 - 32.36%
1998 - 7.49%
1999 - 8.17%
During the period shown above, the highest quarterly return was 14.02% for the
quarter ended December 31, 1998 and the lowest was (15.21%) for the quarter
ended September 30, 1998.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending PAST SINCE INCEPTION
December 31, 1999) ONE YEAR (FEBRUARY 1, 1996)
- ------------------ -------- ------------------
Portfolio Shares 8.17% 15.73%
- ---------------- ----- ------
S&P 500 Index* 21.03% 25.94%
- -------------- ------ ------
* The S&P 500-Registered Trademark- Index, reflecting reinvestment of dividends,
is an unmanaged index of 500 leading stocks. S&P 500-Registered Trademark- Index
is a registered trademark of the Standard & Poor's Corporation.
The Fulcrum Trust 7
<PAGE>
<PAGE>
EXPENSE SUMMARY
The following tables describe the fees and expenses that you may pay if you
invest in the Portfolios. The expenses listed below are not the only expenses if
you are purchasing a variable insurance contract. You should refer to the
variable insurance contract prospectus for more information relating to fees and
expenses, which are in addition to the expenses of the Portfolios.
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
For the first 12 full calendar months after a new Portfolio Manager is hired
(or, in the case of a Portfolio that has had only one Portfolio Manager, for the
first 12 full calendar months of operations), the advisory agreements set the
management fee at an annual rate of 0.80% of the Portfolio's average daily net
assets.
After the initial 12-month period described above, each Portfolio has a
performance-based advisory fee. As of the date of this prospectus, this fee is
in effect for all Portfolios . See "Management and Portfolio Management
Investment Advisory Fees," pages 19-21.
Shown below is expense information first using the fees that actually applied
during 1999. Also shown below is expense information assuming fees of 0.00%,
2.00% and 4.00%, because the fees in 2000 and future years may vary. You should
note, however, that the fee could be any figure between 0.00% and 4.00%, not
just the specific figures shown below.
For each of the fee levels shown, we have included an example prepared in
accordance with the requirements of the Securities and Exchange Commission
("SEC"). The purpose of the examples is to assist investors in comparing the
cost of investing in a Portfolio with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in a Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment earns a 5% return each
year and that the Portfolio's operating expenses remain the same. Your actual
costs may be higher or lower.
The Fulcrum Trust 8
<PAGE>
1. USING 1999 MANAGEMENT FEES
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL ANNUAL
FEES MANAGEMENT DISTRIBUTION OTHER FUND
(FEES PAID DIRECTLY FEES (12B-1) FEES EXPENSES(1,2) OPERATING
FROM YOUR INVESTMENT) EXPENSES(1,2)
--------------------- -------------
<S> <C> <C> <C> <C> <C>
The Global Interactive/ None 2.47% None 1.75% 4.22%
Telecomm Portfolio
------------------
The International Growth Portfolio None 1.21% None 4.06% 5.27%
- ---------------------------------- ---- ----- ---- ----- -----
The Growth Portfolio None 0.36% None 2.55% 2.91%
- -------------------- ---- ----- ---- ----- -----
The Value Portfolio None 0% None 1.76% 1.76%
- ------------------- ---- -- ---- ----- -----
</TABLE>
EXAMPLE. The purpose of this example is to assist investors in comparing the
cost of investing in a Portfolio with the cost of investing in other mutual
funds. Your actual costs may be higher or lower. A shareholder would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
the advisory fees in the above chart, and (3) redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Global Interactive/Telecomm Portfolio $433 $1,306 $2,192 $4,459
- ----------------------------------------- ---- ------ ------ ------
The International Growth Portfolio $540 $1,614 $2,679 $5,305
- ---------------------------------- ---- ------ ------ ------
The Growth Portfolio $298 $913 $1,553 $3,269
- -------------------- ---- ---- ------ ------
The Value Portfolio $180 $559 $ 962 $2,087
- ------------------- ---- ---- ------ ------
</TABLE>
2. ASSUMING MANAGEMENT FEE OF 0%
An advisory fee of 0% would be paid if the Portfolio's performance (net of all
fees and expenses) was more than 3.0 percentage points lower than the benchmark
index.
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL ANNUAL
FEES FUND
(FEES PAID DIRECTLY MANAGEMENT DISTRIBUTION OTHER OPERATING
FROM YOUR INVESTMENT) FEES (12B-1) FEES EXPENSES(1,2) EXPENSES
--------------------- ---- ------------ ------------- --------
<S> <C> <C> <C> <C> <C>
The Global Interactive/ None 0.00% None 1.75% 1.75%
Telecomm Portfolio
------------------
The International Growth Portfolio None 0.00% None 4.06% 4.06%
---------------------------------- ---- ----- ---- ----- -----
The Growth Portfolio None 0.00% None 2.55% 2.55%
-------------------- ---- ----- ---- ----- -----
The Value Portfolio None 0.00% None 1.76% 1.76%
------------------- ---- ----- ---- ----- -----
</TABLE>
9 The Fulcrum Trust
<PAGE>
EXAMPLE. The purpose of this example is to assist investors in comparing the
cost of investing in a Portfolio with the cost of investing in other mutual
funds. Your actual costs may be higher or lower. A shareholder would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
an advisory fee of 0%, and (3) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Global Interactive/Telecomm Portfolio $179 $556 $956 $2,076
- ----------------------------------------- ---- ---- ---- ------
The International Growth Portfolio $416 $1,259 $2,116 $4,322
- ---------------------------------- ---- ------ ------ ------
The Growth Portfolio $261 $803 $1,371 $2,913
- -------------------- ---- ---- ------ ------
The Value Portfolio $180 $559 $962 $2,087
- ------------------- ---- ---- ---- ------
</TABLE>
3. ASSUMING MANAGEMENT FEE OF 2.00% An advisory fee of 2.00% would be paid if
the Portfolio's performance (net of all fees and expenses, including the 2.00%
advisory fee) was between 1.5 and 3.0 percentage points better than the
benchmark index.
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL ANNUAL
FEES FUND
(FEES PAID DIRECTLY MANAGEMENT DISTRIBUTION OTHER OPERATING
FROM YOUR INVESTMENT) FEES (12B-1) FEES EXPENSES(1,2) EXPENSES(1,2)
--------------------- ---- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
The Global Interactive/ None 2.00% None 1.75% 3.75%
Telecomm Portfolio
-----------------
The International Growth Portfolio None 2.00% None 4.06% 6.06%
- ---------------------------------- ---- ----- ---- ----- -----
The Growth Portfolio None 2.00% None 2.55% 4.55%
- -------------------- ---- ----- ---- ----- -----
The Value Portfolio None 2.00% None 1.76% 3.76%
- ------------------- ---- ----- ---- ----- -----
</TABLE>
EXAMPLE. The purpose of this example is to assist investors in comparing the
cost of investing in a Portfolio with the cost of investing in other mutual
funds. Your actual costs may be higher or lower. A shareholder would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
an advisory fee of 2%, and (3) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Global Interactive/Telecomm Portfolio $384 $1,167 $1,967 $4,050
- ----------------------------------------- ---- ------ ------ ------
The International Growth Portfolio $621 $1,841 $3,031 $5,884
- ---------------------------------- ---- ------ ------ ------
The Growth Portfolio $466 $1,404 $2,348 $4,735
- -------------------- ---- ------ ------ ------
The Value Portfolio $385 $1,170 $1,972 $4,059
- ------------------- ---- ------ ------ ------
</TABLE>
The Fulcrum Trust 10
<PAGE>
4. ASSUMING MANAGEMENT FEE OF 4.00%
An advisory fee of 4.00% would be paid if the Portfolio's performance (net of
all fees and expenses, including the 4.00% advisory fee) was at least 7.5
percentage points better than the benchmark index.
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL ANNUAL
FEES FUND
(FEES PAID DIRECTLY MANAGEMENT DISTRIBUTION OTHER OPERATING
FROM YOUR INVESTMENT) FEES (12B-1) FEES EXPENSES(1,2) EXPENSES
--------------------- ---- ------------ ------------- --------
<S> <C> <C> <C> <C> <C>
The Global Interactive/ None 4.00% None 1.75% 5.75%
Telecomm Portfolio
------------------
The International Growth Portfolio None 4.00% None 4.06% 8.06%
- ---------------------------------- ---- ----- ---- ----- -----
The Growth Portfolio None 4.00% None 2.55% 6.55%
- -------------------- ---- ----- ---- ----- -----
The Value Portfolio None 4.00% None 1.76% 5.76%
- ------------------- ---- ----- ---- ----- -----
</TABLE>
EXAMPLE. The purpose of this example is to assist investors in comparing the
cost of investing in a Portfolio with the cost of investing in other mutual
funds. Your actual costs may be higher or lower. A shareholder would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
an advisory fee of 4%, and (3) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Global Interactive/Telecomm Portfolio $589 $1,752 $2,895 $5,662
- ----------------------------------------- ---- ------ ------ ------
The International Growth Portfolio $826 $2,398 $3,870 $7,149
- ---------------------------------- ---- ------ ------ ------
The Growth Portfolio $671 $1,980 $3,244 $6,219
- -------------------- ---- ------ ------ ------
The Value Portfolio $590 $1,755 $2,899 $5,670
- ------------------- ---- ------ ------ ------
</TABLE>
(1) Actual 1999 "other expenses" were less than these shown in the above charts
because of a voluntary expense limitation agreed to by Allmerica Financial
Investment Management Services, Inc. ("AFIMS"), investment manager of the Trust.
AFIMS currently limits the "other expenses" to an annual rate of 1.50% of
average daily net assets for The Global Interactive/Telecomm Portfolio and The
International Growth Portfolio and an annual rate of 1.20% of average daily net
assets for The Growth Portfolio and The Value Portfolio. The Manager has agreed
to continue these voluntary expense limitations through June 30, 2000. AFIMS has
agreed to keep their limitation in place through June 30, 2000, but it may
discontinue this limitation at any time after that date.
(2) Each Portfolio is obligated to reimburse AFIMS for any portfolio expenses
AFIMS reimburses subject to certain limitations discussed in "Expense
Limitations", page 23.
11 The Fulcrum Trust
<PAGE>
[GRAPHIC] DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
The principal risks of investing in a Portfolio and the factors likely to cause
the value of your investment in the Portfolio to decline are described below.
The principal risks applicable to each Portfolio are identified under "Portfolio
Summaries - Objectives, Strategies and Risks." There are also many factors that
could cause the value of your investment in a Portfolio to decline which are not
described here. The price per share of each Portfolio will change daily based on
market conditions and other factors. It is important to remember that there is
no guarantee that the Portfolios will achieve their investment objective, and an
investor in any of the Portfolios could lose money.
COMPANY RISK
A Portfolio's equity and fixed income investments in a company often fluctuate
based on:
- - The firm's actual and anticipated earnings,
- - Changes in management, product offerings and overall financial strength and
- - The potential for takeovers and acquisitions.
This is due to the fact that prices of securities react to the fiscal and
business conditions of the company that issued the securities. Factors affecting
a company's particular industry, such as increased production costs, also may
affect the value of its securities. With respect to the Global
Interactive/Telecomm Portfolio, adverse changes in global economic conditions or
the interactive/telecommunications industry may cause the value of the
Portfolio's shares to fall sharply. A downturn in the interactive/
telecommunications industry also would have more of an impact on the
Portfolio than on a fund that was diversified among many different industries.
Smaller companies with market capitalizations of less than $1 billion or so are
more likely than larger companies to have limited lines or smaller markets for
their products and services. Small company stocks may not trade very actively,
and their prices may fluctuate more than stocks of other companies as a result
of lower liquidity. They may depend on a small or inexperienced management
group. Stocks of smaller companies also may be more vulnerable to negative
changes than stocks of larger companies.
CURRENCY RISK
This is the risk that foreign currencies will decline in value relative to the
U.S. dollar. Portfolios that invest in securities denominated in or are
receiving revenues in foreign currencies are subject to currency risk. There is
often a greater risk of currency fluctuations and devaluations in emerging
market countries.
DERIVATIVES RISK
A Portfolio may use derivatives to hedge against an opposite position that the
Portfolio also holds. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When a Portfolio uses derivatives to hedge, it takes
the risk that changes in the value of the derivative will not match those of the
asset being hedged. Incomplete correlation can result in unanticipated losses. A
Portfolio may also use derivatives as an investment vehicle to gain market
exposure. Gains or losses from derivative investments may be substantially
greater than the derivative's original cost. When a Portfolio uses derivatives,
it is also subject to the risk that the other party to the agreement will not be
able to perform. Additional risks associated with derivatives include mispricing
and improper valuation.
The Fulcrum Trust 12
<PAGE>
EMERGING MARKETS RISK
Investments in emerging markets securities involve all of the risks of
investments in foreign securities, and also have additional risks. The markets
of developing countries have been more volatile than the markets of developed
countries with more mature economies. Many emerging markets companies in the
early stages of development are dependent on a small number of products and lack
substantial capital reserves. In addition, emerging markets often have less
developed legal and financial systems. These markets often have provided
significantly higher or lower rates of return than developed markets and usually
carry higher risks to investors than securities of companies in developed
countries.
FOREIGN INVESTMENT RISK
Investing in foreign securities involves risks relating to political, social and
economic developments abroad, as well as risks resulting from the differences
between the regulations to which U.S. and foreign issuers and markets are
subject. These risks may include the seizure by the government of company
assets, excessive taxation, withholding taxes on dividends and interest,
limitations on the use or transfer of portfolio assets, and political or social
instability. In the event of nationalization, expropriation or other
confiscation, a Portfolio could lose its entire investment. Portfolios investing
in foreign securities may experience rapid changes in value. One reason for this
volatility is that the securities markets of many foreign countries are
relatively small, with a limited number of companies representing a small number
of industries. Enforcing legal rights may be difficult, costly and slow in
foreign countries. Also, foreign companies may not be subject to governmental
supervision or accounting standards comparable to those applicable to U.S.
companies, and there may be less public information about their operations.
INVESTMENT MANAGEMENT RISK
Investment management risk is the risk that a Portfolio does not achieve its
investment objective, even though the Portfolio Manager uses various investment
strategies and techniques.
LIQUIDITY RISK
This is the risk that a Portfolio will not be able to sell a security at a
reasonable price because there are too few people who actively buy and sell, or
trade, that security on a regular basis. Liquidity risk increases for Portfolios
investing in foreign investments (especially emerging markets securities),
smaller companies, lower credit quality bonds (also called junk bonds),
restricted securities, over-the-counter securities and derivatives.
MARKET RISK
This is the risk that the price of a security held by a Portfolio will fall due
to changing economic, political or market conditions or to factors affecting
investor psychology.
TECHNOLOGY RISK
Investments in the technology industries, even though representing interests in
different companies within these industries, may be affected by common economic
forces and other factors. In addition, stock prices of companies in technology
industries have historically been more volatile than those of companies in other
industries.
13 The Fulcrum Trust
<PAGE>
[GRAPHIC] OTHER INVESTMENT STRATEGIES
The Portfolio Summaries starting on page 3 describe the investment objective and
the principal investment strategies and risks of each Portfolio. The investment
objectives of the Portfolios are fundamental, which means that they may be
changed only with shareholder approval. Unless otherwise indicated, each
Portfolio's practices, policies and programs for achieving its objectives are
not fundamental and thus may be changed by the Board of Trustees without
shareholder approval. The Statement of Additional Information sets forth certain
investment restrictions which are fundamental, and, like the investment
objectives, may be changed only with shareholder approval. There is no guarantee
that the Portfolios will achieve their objective and an investor in any of the
Portfolios could lose money. Attached is an Appendix illustrating various
investment techniques and strategies that the Portfolio Managers of the
Portfolios may utilize. The Portfolios may at times use the following
strategies:
DERIVATIVE INVESTMENTS. Instead of investing in the types of portfolio
securities described in the Summary, each Portfolio may buy or sell a variety of
"derivative" investments to gain exposure to particular securities or markets.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. A Portfolio's
Portfolio Manager will sometimes use derivatives as part of a strategy designed
to reduce other risks and sometimes will use derivatives for leverage, which
increases opportunities for gain but also involves greater risk.
FOREIGN SECURITIES. Each Portfolio may invest all or a substantial part of its
portfolio in securities of companies that are located or primarily doing
business in a foreign country. A company is considered to be located in a
foreign country if it is organized under the laws of, or has a principal office
in, that country. A company is considered as primarily doing business in a
country if (i) the company derives at least 50% of its gross revenues or profits
from either goods or services produced or sold in the country or (ii) at least
50% of the company's assets are situated in the country. A Portfolio may invest
in foreign securities either directly or indirectly through the use of
depository receipts, such as American Depository Receipts or ADRs. Depository
receipts are generally issued by banks or trust companies and evidence ownership
of underlying foreign securities. An ADR may be sponsored by the issuer of the
underlying foreign security or it may be issued in unsponsored form. The holder
of a sponsored ADR is likely to receive more frequent and extensive financial
disclosure concerning the foreign issuer than the holder of an unsponsored ADR
and generally will bear lower transaction charges.
DEBT SECURITIES. All Portfolios may invest in corporate debt securities of
domestic or foreign issuers. Each Portfolio may only invest in debt securities
which meet the minimum ratings criteria set forth for that particular Portfolio
and unrated debt securities that are comparable in quality to the rated debt
securities in which the Portfolio may invest. Debt securities are subject to
credit risk (the risk that the issuer may not be able to pay principal and
interest when due) and interest rate risk (the risk that the values may decrease
as interest rates increase).
The Global Interactive/Telecomm, International Growth, Growth, and Value
Portfolios may each invest up to 5% of assets in high yield securities. These
securities are considered to be speculative with respect to the issuer's
capacity to pay interest and repay principal.
The Fulcrum Trust 15
<PAGE>
LENDING PORTFOLIO SECURITIES. To realize additional income, each Portfolio may
lend securities with a value of up to 33% of its total assets to unaffiliated
broker-dealers or institutional investors. Any loan will be secured by
collateral at least equal to the value of the security loaned. While any such
loan is outstanding, a Portfolio will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less any rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. Each Portfolio will have the right to
call each loan and obtain the securities. Lending portfolio securities involves
possible delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral.
ILLIQUID SECURITIES. Each Portfolio may invest up to 15% of its net assets in
securities for which there is no readily available market ("illiquid
securities"), which would include repurchase agreements having more than 7 days
to maturity. A considerable period of time may elapse between a Portfolio's
decision to dispose of such securities and the time when the Portfolio is able
to dispose of them, during which time the value of the securities could decline.
The SEC has adopted Rule 144A which permits resale among certain institutional
investors of certain unregistered securities which have been deemed liquid.
TEMPORARY DEFENSIVE STRATEGIES. At times a Portfolio Manager may determine that
market conditions make it desirable temporarily to suspend a Portfolio's normal
investment activities. This is when the Portfolio may temporarily invest in a
variety of lower-risk securities, such as U.S. Government and other high quality
bonds and short-term debt obligations. Such strategies attempt to reduce changes
in the value of the Portfolio's shares. The Portfolio may fail to profit from
favorable developments affecting its normal investments while these strategies
are in effect.
FREQUENT TRADING. Certain Portfolios from time to time may engage in active and
frequent trading to achieve their investment objective. Frequent trading
increases transaction costs, which could decrease the Portfolio's performance.
16 The Fulcrum Trust
<PAGE>
[GRAPHIC] MANAGEMENT OF THE PORTFOLIOS
THE TRUST. The business and affairs of the Trust are managed under the direction
of the Board of Trustees.
MANAGER. Allmerica Financial Investment Management Services, Inc. ("AFIMS" or
the "Manager") serves as overall Manager of the Trust. As Manager, AFIMS is
responsible for general administration of the Trust as well as monitoring and
evaluating the performance of the Portfolio Managers. AFIMS, a Massachusetts
corporation, is registered with the Securities and Exchange Commission as an
investment adviser. AFIMS is located at 440 Lincoln Street, Worcester,
Massachusetts 01653 and is an indirect, wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"). AFC is the parent company of the two life
insurance companies, Allmerica Financial Life Insurance and Annuity Company and
First Allmerica Financial Life Insurance Company ("FAFLIC"), which utilize the
Trust as an underlying fund for their variable contracts.
PORTFOLIO MANAGERS. Portfolio Managers have been hired to manage the investments
of the Portfolios.
The Portfolio Managers' activities are subject to general oversight by the
Trustees and AFIMS. Although the Trustees and AFIMS do not evaluate the
investment merits of the Portfolio Managers' specific securities selections,
they do review each Portfolio Manager's overall performance.
The following table provides information about each Portfolio's Portfolio
Manager:
<TABLE>
<CAPTION>
PORTFOLIO,
PORTFOLIO MANAGER NAME AND ADDRESS EXPERIENCE
- ---------------------------------- ----------
<S> <C>
GLOBAL INTERACTIVE/TELECOMM PORTFOLIO - Organized in 1978
GAMCO Investors, Inc. - $9.3 billion assets under management
One Corporate Center as of December 31, 1999
Rye, NY 10580-1434 - Acts as investment adviser for
individuals, pension trusts,
profit-sharing trusts and endowments
------------------------------------
INTERNATIONAL GROWTH PORTFOLIO - Established in 1989
Bee & Associates, Incorporated - Over $475 million assets under
370 17th Street, Suite 3560 management as of March 31, 2000
Denver, CO 80202 - Provides global equity management
expertise to individual retirement
plan sponsors, foundations,
endowments and other entities
-----------------------------
</TABLE>
The Fulcrum Trust 17
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO,
PORTFOLIO MANAGER NAME AND ADDRESS EXPERIENCE
- ---------------------------------- ----------
<S> <C>
GROWTH PORTFOLIO - Founded in 1970
Analytic Investors, Inc. - Manages assets totaling approximately
700 South Flower Street, Suite 2400 $1.5 billion as of December 31, 1999
Los Angeles, CA 90017 - Provides management of investment
advisory accounts to individuals,
banks/thrift institutions,
investment companies, pension
and profit sharing plans,
trusts, estates or charitable
organizations and other corporations
------------------------------------
VALUE PORTFOLIO Refer to Global Interactive/ Telecomm
GAMCO Investors, Inc. Portfolio above
One Corporate Center
Rye, NY 10580-1434
- ------------------
</TABLE>
18 The Fulcrum Trust
<PAGE>
The following individuals or groups of individuals are primarily responsible for
the day-to-day management of the Portfolios:
<TABLE>
<CAPTION>
PORTFOLIO NAME, NAME AND TITLE OF
PORTFOLIO MANAGER INDIVIDUAL PORTFOLIO MANAGED BUSINESS EXPERIENCE
NAME MANAGER(S) PORTFOLIO SINCE FOR THE PAST FIVE YEARS
- ---- ---------- --------------- -----------------------
<S> <C> <C> <C>
GLOBAL INTERACTIVE/TELECOMM Mario J. Gabelli, 1996 Mr. Gabelli has more than
PORTFOLIO Chief Investment Officer 26 years of experience in
GAMCO Investors, the investment industry and
Inc. ("GAMCO") has been chief investment
officer of GAMCO since its
inception.
----------
INTERNATIONAL GROWTH PORTFOLIO Adam D. Schor, Chief 1999 Mr. Schor has served as
Bee & Associates Incorporated Investment Officer Chief Investment Officer
("Bee & Associates") Principal portfolio manager since August 1999; from
- -------------------- --------------------------- 1997 to 1999 he was a member
of the portfolio management
team; from 1993 to 1997,
Mr. Schor worked at Harris
Associates, where he covered
various geographic regions for
the Oakmark International Fund.
He also Co-managed two funds,
the Oakmark International Small
Cap Fund and the Growth
Fund of Israel.
Jason P. Yee, 1999 Mr. Yee has served as a Principal
Managing Director of Bee & Associates since July
1999; he joined the firm in
1996 from Janus Capital
Corporation where he served
as an equity research analyst.
GROWTH PORTFOLIO Harindra de Silva, President 1998 Mr. de Silva has served as
Analytic Investors, President of Analytic
Inc. ("Analytic") since April 1998; from 1986
to 1998, he served as
Principal of Analysis Group, Inc. He
has been a member of the
portfolio management team of
Analytic since 1995.
Dennis Bein, Portfolio Manager 1998 Mr. Bein has been a member
of the portfolio management
and research team of Analytic
since August 1995; he served
as a senior associate for
Analysis Group, Inc. from
1990 to 1998.
-------------
Steve Sapra, Portfolio Manager 1999 Mr. Sapra has been a member
of the portfolio management
and research team of Analytic
since September 1999; he served
as Senior Consultant at BARRA, Inc.
from July 1997 to August 1999.
From September 1995 to June 1997,
Mr. Sapra was earning his Masters in
Economics from the University
of Southern California.
VALUE PORTFOLIO Refer to Global Interactive/
GAMCO Investors, Inc. ("GAMCO") Telecomm Portfolio above
- ------------------------------- ------------------------
</TABLE>
The Fulcrum Trust 19
<PAGE>
MANAGEMENT AND PORTFOLIO MANAGEMENT
INVESTMENT ADVISORY FEES
AFIMS serves as the overall manager of the Portfolios, and the Portfolio
Managers handle the day-to-day investment management of the Portfolios. For
these services, each Portfolio pays an overall management fee, computed and
accrued daily and paid monthly, based on its average daily net assets. The
overall fee varies based on the performance of that Portfolio (after expenses)
compared to that of an appropriate benchmark. The Portfolio Manager receives 80%
of the fee, and AFIMS receives the remaining 20%.
FIXED ADVISORY FEE FOR THE FIRST 12 FULL CALENDAR MONTHS. For the period
beginning on the effective date of a Portfolio Manager Agreement with a new
Portfolio Manager (or, in the case of a Portfolio that has had only one
Portfolio Manager, the day on which the Portfolio began investment operations)
and ending with the last day of the twelfth full calendar month thereafter,
- each Portfolio Manager will be paid a monthly advisory fee calculated at an
annual rate of 0.80% of the Portfolio's average daily net assets.
PERFORMANCE-BASED FEE. After the first 12 full calendar months with a new
Portfolio Manager as described above, each Portfolio pays, at the end of each
month:
- a monthly advisory fee equal to a BASIC FEE plus or minus an INCENTIVE FEE.
(As explained below, the fee might be reduced if absolute performance is
negative.)
The monthly basic fee equals one-twelfth of the annual Basic Fee rate of 2.0%
multiplied by average daily net assets over the previous 12 months. The
incentive fee rate ranges from -2.0% to +2.0% on an annual basis, depending
on a comparison of the Portfolio's performance (reflecting a deduction of
Portfolio expenses) and the performance of a selected benchmark index over
the past 12 months. The monthly Incentive Fee, like the monthly Basic Fee, is
calculated by multiplying one-twelfth of the Incentive Fee rate on an annual
basis by the average daily net assets over the previous 12 months.
Accordingly, the Total Fee could range from 0.0% to an annual rate of 4.0%,
depending on performance.
- The PERFORMANCE OF A PORTFOLIO is calculated by first determining the
change in the Portfolio's net asset value per share during the previous 12
months, assuming the reinvestment of distributions during that period, and
then expressing this amount as a percentage of the net asset value per share
at the beginning of the period. Net asset value per share is calculated by
dividing the value of the securities held by the Portfolio plus any cash or
other assets minus all liabilities including accrued advisory fees and the
other expenses, by the total number of shares outstanding at the time.
- The PERFORMANCE OF THE SELECTED BENCHMARK INDEX is calculated as the sum of
the change in the level of the index during the previous 12 months, plus the
value of any dividends or distributions made by the companies whose
securities comprise the index accumulated to the end of the period, and then
expressing that amount as a percentage of the index at the beginning of the
period.
No Incentive Fee will be paid if the Portfolio's performance equals the
targeted performance-selected benchmark index plus 2.25 percentage points.
The maximum fee will be paid if performance is 5.25 percentage points higher
than the target (i.e., 7.5 percentage points higher than the selected
benchmark index). No fee will be paid if performance is 5.25 percentage
points lower than the target, (i.e., more than 3 percentage points below the
selected benchmark index). The chart below further explains the Incentive Fee
at various performance levels.
20 The Fulcrum Trust
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE POINT DIFFERENCE BETWEEN PERFORMANCE OF THE PORTFOLIO
(NET OF EXPENSES INCLUDING BASIC FEE AND INCENTIVE FEE)
AND CHANGE IN SELECTED BENCHMARK INDEX TOTAL
BASIC FEE (%) INCENTIVE FEE ADVISORY FEE
------------- ------------- ------------
<S> <C> <C> <C>
+7.5 or greater 2.0 2.0 4.0
--------------- --- --- ---
+6.0 or greater, but less than +7.5 2.0 1.5 3.5
----------------------------------- --- --- ---
+4.5 or greater, but less than +6.0 2.0 1.0 3.0
----------------------------------- --- --- ---
+3.0 or greater, but less than +4.5 2.0 0.5 2.5
----------------------------------- --- --- ---
+1.5 or greater, but less than +3.0 2.0 0.0 2.0
----------------------------------- --- --- ---
0.0 or greater, but less than +1.5 2.0 -0.5 1.5
---------------------------------- --- ---- ---
-1.5 or greater, but less than 0.0 2.0 -1.0 1.0
---------------------------------- --- ---- ---
-3.0 or greater, but less than -1.5 2.0 -1.5 0.5
----------------------------------- --- ---- ---
Less than -3.0 2.0 -2.0 0.0
-------------- --- ---- ---
</TABLE>
MAXIMUM FEE IF PERFORMANCE IS NEGATIVE.
- IF THE ABSOLUTE PERFORMANCE OF A PORTFOLIO (AFTER PAYMENT OF ALL EXPENSES,
INCLUDING THE BASIC FEE AND ANY INCENTIVE FEE) IS NEGATIVE, the monthly
advisory fee will be the lesser of the fee calculated pursuant to the above
schedule or the alternative monthly advisory fee described below, which under
certain circumstances results in the Portfolios paying either no advisory fee
or a lower monthly advisory fee than under the performance fee schedule
above.
- IF A PORTFOLIO'S PERFORMANCE (AFTER PAYMENT OF ALL EXPENSES INCLUDING
ADVISORY FEES) IS NEGATIVE AND DOES NOT EXCEED THE SELECTED BENCHMARK BY SIX
PERCENTAGE POINTS (on an annual basis), no monthly advisory fee will be paid.
- IF THE PORTFOLIO'S PERFORMANCE (AFTER PAYMENT OF ALL EXPENSES INCLUDING
ADVISORY FEES) IS NEGATIVE AND DOES NOT EXCEED THE SELECTED BENCHMARK BY
TWELVE PERCENTAGE POINTS BUT DOES EXCEED THE SELECTED BENCHMARK BY SIX
PERCENTAGE POINTS (on an annual basis), the alternate monthly advisory fee will
be based on an annual rate of 1.0% of average daily net assets over the previous
12 months.
- - IF THE PERFORMANCE OF A PORTFOLIO (AFTER PAYMENT OF ALL EXPENSES INCLUDING
ADVISORY FEES) IS NEGATIVE BUT EXCEEDS THE SELECTED BENCHMARK BY TWELVE
PERCENTAGE POINTS OR MORE (on an annual basis), the alternative monthly
advisory fee will be based on an annual rate of 2.0% of average daily net
assets over the previous 12 months.
SIZE OF FEE.
- The Basic Fee payable by the Portfolios is at a rate higher than the
investment advisory fees paid by most other investment companies. If a
Portfolio OUTPERFORMS the selected benchmark by 3.0 percentage points or
more, the advisory fee payable by a Portfolio may further exceed those paid
by other investment companies.
- If a Portfolio UNDERPERFORMS the selected benchmark, the advisory fee paid
by the Portfolio may be less than those paid by other investment companies.
- If, during the applicable performance period, a Portfolio UNDERPERFORMS the
selected benchmark by three or more percentage points, the Portfolio will not
pay any advisory fee.
PERFORMANCE BENCHMARKS.
As described above, total advisory fees paid to each Portfolio Manager for
advising the Portfolios are based on the performance of the Portfolio they
manage relative to a market benchmark selected in light of the investment
objective and policies of the Portfolio. The performance benchmarks selected for
the Portfolios are listed below and described in more detail on pages 4-7.
The Fulcrum Trust 21
<PAGE>
PORTFOLIO PERFORMANCE BENCHMARK
The Global Interactive/Telecomm Portfolio S&P 500
The International Growth Portfolio Morgan Stanley EAFE Index
Morgan Stanley EAFE Small Cap Index*
The Growth Portfolio S&P 500
The Value Portfolio S&P 500
*Effective December 1, 1999, the Morgan Stanley EAFE Small Cap Index replaced
the Morgan Stanley EAFE Index as the performance benchmark for the International
Growth Portfolio. For the period beginning December 1, 1999 and ending November
30, 2000, the payment of the Portfolio's advisory fee will be based on the
lesser of two fee calculations, one using the new benchmark and the other using
the old benchmark. Starting December 1, 2000 only the Morgan Stanley EAFE Small
Cap Index will be used to calculate the fee.
22 The Fulcrum Trust
<PAGE>
EXPENSE LIMITATIONS
EXPENSE LIMITATIONS. AFIMS has agreed to limit operating expenses through at
least June 30, 2000. While this limitation is in effect, AFIMS will reimburse
each Portfolio to the extent that its "other expenses" (i.e., expenses other
than management fees) exceed the expense limitations (expressed as an annualized
percentage of average daily net assets) in the following table. There is no
guarantee that any expense limitation will be in place after June 30, 2000.
<TABLE>
<CAPTION>
PORTFOLIO CURRENT "OTHER EXPENSES" LIMITATION
--------- -----------------------------------
<S> <C>
The Global Interactive/ 1.50%
Telecomm Portfolio
- ------------------
The International 1.50%
Growth Portfolio
- ----------------
The Growth Portfolio 1.20%
- --------------------
The Value Portfolio 1.20%
- -------------------
</TABLE>
AFIMS has agreed to pay any amount due for a calendar month not later than the
15th day of the following calendar month (with any annual adjustment to be made
not later than January 15 of the following calendar year).
REIMBURSEMENT PROVISION. Each Portfolio is obligated to reimburse AFIMS for any
payments it made to the Portfolio under these expense limitations and other
expense limitations that were in place in previous years, provided that the
Portfolio need only reimburse AFIMS (1) to the extent it can do so and still
keep "other expenses" under the limitations that were in place and (2) during
the two calendar years after the expense limitation payments were made by AFIMS.
In particular, reimbursement for any payments due to the expense limitation in
effect during 1998 shall be paid by a Portfolio only to the extent that the
Portfolio can do so prior to December 31, 2000 without causing its "other
expenses" to exceed the following percentage applicable to that Portfolio
(expressed as an annualized percentage of the Portfolio's average daily net
assets): the Value Portfolio (1.00%); the Growth Portfolio (1.00%); the
International Growth Portfolio (1.20%); and the Global Interactive/Telecomm
Portfolio (1.20%). Reimbursement for any payments due to the expense limitation
in effect during 1999 shall be paid by a Portfolio only to the extent that the
Portfolio can do so prior to December 31, 2001 without causing its "other
expenses" to exceed the current expense limitation applicable to that Portfolio
(see chart above). Reimbursement for any payments due to the expense limitation
in effect during 2000 shall be paid by a Portfolio only to the extent that the
Portfolio can do so prior to December 31, 2002 without causing its "other
expenses" to exceed the current expense limitation applicable to that Portfolio
(see chart above).
The Fulcrum Trust 23
<PAGE>
PRICING, PURCHASE AND REDEMPTION
PRICING OF SHARES
The price of one share of each Portfolio is equal to the Portfolio's "net asset
value" or "NAV" per share. NAV is computed once daily at the close of regular
trading on the New York Stock Exchange each day the Exchange is open - normally
4:00 p.m. Eastern Time. Net asset value per share is calculated by dividing the
aggregate value of each Portfolio's assets less all liabilities by the number of
each Portfolio's outstanding shares.
Each Portfolio's assets are valued primarily on the basis of market quotations.
Short-term debt securities with remaining maturities of 60 days or less are
valued on the basis of amortized cost. Other debt securities are generally
valued based on price quotes obtained from pricing services or broker-dealers.
Foreign securities are valued on the basis of quotations from the primary market
on which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. In addition, if quotations are not
available for any security, or if the values of foreign securities have been
materially affected by events occurring after the closing of a foreign market,
assets may be valued by another method that the Board of Trustees believes
accurately reflects fair value.
PURCHASE OF SHARES
Shares of each Portfolio are sold at the first net asset value per share
calculated after the Trust (or its agent) receives the purchase order. The Trust
does not charge any sales charge or sales load. The Trust is intended to be a
funding vehicle for variable annuity and variable life insurance contracts
offered by both affiliated and unaffiliated insurance companies and for certain
qualified pension and retirement plans. Because of differences in tax treatment
and other considerations, however, it is possible that the interests of contract
owners and plan participants might at some time be in conflict. Accordingly, the
Board of Trustees will monitor events to identify any material irreconcilable
conflicts and to determine what action, if any, should be taken in response to
any such conflict.
REDEMPTION OF SHARES
Shares of the Portfolios may be redeemed on any business day. The Trust does not
charge any sales charge or sales load. Shares of each Portfolio are redeemed at
the first net asset value per share calculated after the Trust (or its agent)
receives a proper redemption request or sooner if required by law. The right of
redemption may be suspended by the Trust or the payment date postponed beyond
seven days:
- - when the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- - when an emergency exists, as determined by the Securities and Exchange
Commission; or
- - whenever the Securities and Exchange Commission has by order allowed such
suspension or postponement for the protection of shareholders.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Portfolios to make payment wholly
or partly in cash, the Portfolios may:
- pay the redemption price in whole or in part by a distribution in kind of
securities from the portfolios, in lieu of cash. (If shares are redeemed in
kind, the redeeming shareholder might incur brokerage costs in converting the
assets into cash.)
24 The Fulcrum Trust
<PAGE>
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
At least annually, each Portfolio declares as dividends substantially all of its
net income, if any, and distributes all of its net realized capital gains. All
dividends and distributions are automatically reinvested in additional shares of
the Portfolio.
FEDERAL INCOME TAXES
The Trust seeks to comply with the provision of the Internal Revenue Code
applicable to regulated investment companies so that the Trust will not be
subject to federal income tax. Under current tax law, dividend or capital gain
distributions from the Portfolio are not currently taxable when left to
accumulate within a variable annuity or variable life insurance contract.
Withdrawals from a contract generally are subject to ordinary income tax and, in
many cases, to an additional 10% penalty tax on withdrawals before age 59 1/2.
If you own or are considering buying a variable contract that invests in the
Portfolios, you should consult the variable contract prospectus for a discussion
of the tax considerations relevant to investing in the Portfolios through that
variable contract.
The tax laws and regulations that apply to qualified retirement plans are
complex and vary according to the type of plan and its terms and conditions. If
you participate in a qualified retirement plan that invests in the Portfolios,
you should consult a qualified tax adviser to learn about your specific tax
situation before investing in the Portfolios or redeeming Portfolio shares.
The Fulcrum Trust 25
<PAGE>
This page is intentionally left blank.
26 The Fulcrum Trust
<PAGE>
[GRAPHIC ]FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the life of the Portfolio. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with each Portfolio's financial statements, are included in
the Statement of Additional Information and annual report, which is available
upon request.
The Fulcrum Trust 27
<PAGE>
THE FULCRUM TRUST
FINANCIAL HIGHLIGHTS - FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
------------------------------------------------- --------------------------------------------------
NET REALIZED
NET AND DISTRIBUTIONS
ASSET NET UNREALIZED DIVIDENDS FROM NET
VALUE INVESTMENT GAIN (LOSS) TOTAL FROM FROM NET REALIZED
YEAR ENDED BEGINNING INCOME ON INVESTMENT INVESTMENT CAPITAL RETURN OF TOTAL
DECEMBER 31, OF YEAR (LOSS)/(2)/ INVESTMENTS OPERATIONS INCOME GAINS CAPITAL DISTRIBUTIONS
- ------------ ------- --------- ----------- ---------- ------ ----- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL
INTERACTIVE/
TELECOMM
PORTFOLIO/(1)/
1999 $15.86 $(0.52) $9.43 $8.91 $-/(5)/ $(2.89) $- $(2.89)
1998/(3)/ 13.32 (0.23) 4.26 4.03 - (1.49) - (1.49)
1997 10.00 0.08 3.95 4.03 (0.04) (0.67) - (0.71)
1996/(4)/ 10.00 (0.75) 0.80 0.05 - - (0.05) (0.05)
INTERNATIONAL
GROWTH
PORTFOLIO/(1)/
1999 8.94 (0.05) 3.37 3.32 (0.04) - - (0.04)
1998/(3)/ 9.72 0.05 (0.83) (0.78) - - - -
1997 10.33 0.10 (0.63) (0.53) (0.05) (0.03) - (0.08)
1996/(4)/ 10.00 (4.16) 4.67 0.51 - - (0.18) (0.18)
GROWTH
PORTFOLIO/(1)/
1999 12.01 0.03 2.38 2.41 - - - -
1998/(3)/ 11.95 (0.05) 0.11 0.06 - - - -
1997 10.84 (0.02) 1.13 1.11 - - - -
1996/(4)/ 10.00 (2.96) 3.80 0.84 - - - -
VALUE
PORTFOLIO/(1)/
1999 13.52 0.01 1.07 1.08 (0.01) (1.74) - (1.75)
1998/(3)/ 13.50 - 1.01 1.01 - (0.99) - (0.99)
1997 10.88 0.17 3.35 3.52 (0.09) (0.81) - (0.90)
1996/(4)/ 10.00 (0.64) 2.15 1.51 - - (0.63) (0.63)
</TABLE>
- --------------------------
* Annualized
** Not annualized
(A) Including reimbursements and waivers of certain operating expenses.
(B) Excluding reimbursements and waivers of certain operating expenses.
(1) The Value Portfolio, Growth Portfolio, and Global Interactive/Telecomm
Portfolio all commenced operation on February 1, 1996. The International
Growth Portfolio commenced operation on March 26, 1996.
(2) Net investment income (loss) per share before reimbursement of certain
operating expenses by the investment advisers were $(0.58) for the year
ended December 31, 1999, $(0.50) in 1998, ($0.62) in 1997 and $(1.34) in
1996 for Global Interactive/Telecomm Portfolio; $(0.40) for the year ended
December 31, 1999, ($0.29) in 1998, $(0.45) in 1997, and $(7.56) in 1996 for
the International Growth Portfolio; $(0.17) for the year ended December 31,
1999, $(0.52) in 1998, $(0.68) in 1997, and $(5.61) in 1996 for the Growth
Portfolio; and $(0.08) for the year ended December 31, 1999, $(0.22) in
1998, $(0.34) in 1997, and $(1.22) in 1996 for the Value Portfolio.
(3) Total return measures the change in the value of an investment for the
period indicated. For the year ended December 31, 1998, the total return
includes capital infusions. Absent the infusions, total returns for the
Global/Interactive Telecomm Portfolio, the International Growth Portfolio,
the Growth Portfolio and the Value Portfolio would have been 30.11%,
(8.23)%, 0.33% and 7.33%, respectively.
(4) For the period ended, December 31, 1996, the total return includes capital
infusions. Absent the infusions, total returns for the Global
Interactive/Telecomm Portfolio, the International Growth Portfolio, the
Growth Portfolio and the Value Portfolio would have been (6.68)%, (46.50)%,
(41.75)% and 7.64%, respectively.
28 The Fulcrum Trust
<PAGE>
THE FULCRUM TRUST
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------
NET RATIOS TO AVERAGE NET ASSETS
INCREASE NET ASSET NET ASSETS -----------------------------------------------------------------------
(DECREASE) VALUE TOTAL END OF NET INVESTMENT PORTFOLIO
IN NET END OF RETURNS YEAR INCOME (LOSS) OPERATING EXPENSES MANAGEMENT TURNOVER
ASSET VALUE PERIOD (3) (4) (000'S) (A) (B) (A) (B) FEE RATE
- ----------- ------ ------- ------- --- --- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6.02 $21.88 56.89% $8,782 (2.95)% (3.25)% 1.45% 1.75% 2.47% 45%
2.54 15.86 30.27% 5,433 (2.06)% (4.38)% 3.33% 5.65% 1.96% 65%
3.32 13.32 40.24% 3,016 0.64% (5.14)% 1.47% 7.26% 0.27% 114%
- 10.00 0.49%** 594 (8.32)%* (14.82)%* 9.83%* 16.45%* 0.80%* 71%
3.28 12.22 37.26% 2,937 (0.42)% (2.97)% 1.50% 4.06% 1.21% 57%
(0.78) 8.94 (8.02)% 2,664 0.55% (3.06)% 1.53% 5.14% 0.05% 60%
(0.61) 9.72 (5.25)% 3,207 0.97% (4.36)% 1.78% 7.11% 0.58% 13%
0.33 10.33 5.13%** 97 (56.37)%* (92.05)%* 67.76%* 126.26%* 0.80%* 116%
2.41 14.42 20.07% 4,703 0.21% (1.14)% 1.20% 2.55% 0.36% 351%
0.06 12.01 0.50% 4,671 (0.39)% (4.21)% 1.22% 5.04% 0.00% 573%
1.11 11.95 10.24% 4,464 (0.16)% (5.38)% 0.90% 6.12% 0.20% 209%
0.84 10.84 8.40%** 148 (31.31)%* (58.37)%* 34.15%* 63.54%* 0.80%* 580%
(0.67) 12.85 8.17% 7,873 0.05% (0.52)% 1.20% 1.76% 0.00% 15%
0.02 13.52 7.49% 8,989 0.01% (1.88)% 1.41% 3.30% 0.30% 70%
2.62 13.50 32.36% 6,585 1.30% (2.60)% 0.84% 4.75% 0.14% 177%
0.88 10.88 15.13%** 900 (6.55)%* (12.40)%* 8.19%* 14.13%* 0.80%* 74%
</TABLE>
The Fulcrum Trust 29
<PAGE>
APPENDIX [GRAPHIC]
INVESTMENT TECHNIQUES AND STRATEGIES
In managing its portfolios of investments, the Trust may make use of the
following investment techniques and strategies:
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
COMMERCIAL PAPER
DEBT SECURITIES
FOREIGN CURRENCY TRANSACTIONS
FOREIGN SECURITIES
FUTURES CONTRACTS
ILLIQUID SECURITIES
INDEXED SECURITIES
INVESTMENTS IN GOLD AND OTHER PRECIOUS METALS
LENDING PORTFOLIO SECURITIES
LEVERAGE
MORTGAGE-BACKED SECURITIES
OPTIONS
OTHER ASSET-BACKED SECURITIES
OTHER INVESTMENT COMPANIES
REPURCHASE AGREEMENTS
RESTRICTED SECURITIES
REVERSE REPURCHASE AGREEMENTS
SHORT SALES AGAINST THE BOX
SHORT SALES
U.S. GOVERNMENT SECURITIES
VARIABLE AND FLOATING RATE SECURITIES
WARRANTS
30 The Fulcrum Trust
<PAGE>
THE FULCRUM TRUST
THE GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
THE INTERNATIONAL GROWTH PORTFOLIO
THE GROWTH PORTFOLIO
THE VALUE PORTFOLIO
THE STRATEGIC INCOME PORTFOLIO
The Trust's Statement of Additional Information (SAI) and annual and semi-annual
reports to shareholders include additional information about the Portfolios. The
SAI and the financial statements included in the Portfolio's most recent annual
report to shareholders are incorporated by reference into this Prospectus, which
means they are part of this Prospectus for legal purposes. The Trust's annual
report discusses the market conditions and investment strategies that
significantly affected each Portfolio's performance during its last fiscal year.
You may get free copies of these materials, request other information about the
Trust or make shareholder inquiries by calling 1-800-917-1909.
You may review and copy information about the Trust, including its SAI, at the
Securities and Exchange Commission's public reference room in Washington, D.C.
You may call the Commission at 1-800-SEC-0330 for information about the
operation of the public reference room. You may also access reports and other
information about the Trust on the Commission's Internet site at
http://www.sec.gov. You may get copies of this information, with payment of a
duplication fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. You may need to refer to the Trust's file number
under the Investment Company Act, which is 811-08278. THIS PROSPECTUS IS
INTENDED FOR USE WITH A VARIABLE CONTRACT OR QUALIFIED PLAN.
THE
FULCRUM
TRUST
440 Lincoln Street, Worcester, Massachusetts 01653
(800) 917-1909
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
THE GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
THE INTERNATIONAL GROWTH PORTFOLIO
THE GROWTH PORTFOLIO
THE VALUE PORTFOLIO
THE STRATEGIC INCOME PORTFOLIO
THE FULCRUM TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(800) 917-1909
This Statement of Additional Information is intended to supplement the
information provided to investors in the Trust's Prospectus dated May 1, 2000.
It has been filed with the Securities and Exchange Commission as part of the
Trust's Registration Statement. The contents of this Statement of Additional
Information are incorporated by reference in the Prospectus in their entirety. A
copy of the prospectus may be obtained free of charge from the Trust at the
address and telephone number listed above.
INVESTORS SHOULD NOTE THAT THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT
ITSELF A PROSPECTUS AND SHOULD BE READ CAREFULLY IN CONJUNCTION WITH THE
PROSPECTUS FOR THE PORTFOLIOS AND RETAINED FOR FUTURE REFERENCE.
The Trust's Financial Statements and related notes and the report of the
independent accountants for the fiscal year ended December 31, 1999 are included
in the Trust's Annual Report to Shareholders, which is incorporated by reference
into this Statement of Additional Information. The Annual Report to Shareholders
is available, without charge, upon request, from the Trust at the address and
telephone numbers listed above.
DATED: MAY 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
TRUST HISTORY..................................................................................................... 3
DESCRIPTION OF THE PORTFOLIOS AND THEIR INVESTMENTS AND RISKS..................................................... 3
INVESTMENT RESTRICTIONS AND POLICIES...................................................................... 4
INVESTMENT STRATEGIES AND TECHNIQUES...................................................................... 6
PORTFOLIO TURNOVER........................................................................................ 20
MANAGEMENT OF THE TRUST........................................................................................... 21
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................................... 22
INVESTMENT MANAGEMENT AND OTHER SERVICES.......................................................................... 23
BROKERAGE ALLOCATION AND OTHER PRACTICES.......................................................................... 26
CAPITAL STOCK AND OTHER SECURITIES................................................................................ 28
PURCHASE, REDEMPTION AND PRICING OF SHARES........................................................................ 29
TAXATION OF THE FUNDS OF THE TRUST................................................................................ 29
UNDERWRITER....................................................................................................... 30
CALCULATION OF PERFORMANCE DATA................................................................................... 30
FINANCIAL STATEMENTS.............................................................................................. 32
APPENDIX A (DESCRIPTION OF RATINGS)............................................................................... 33
</TABLE>
<PAGE>
INTRODUCTION
TRUST HISTORY
This Statement of Additional Information discusses the Global Interactive/
Telecomm Portfolio, the International Growth Portfolio, the Growth Portfolio,
and the Value Portfolio and the Strategic Income Portfolio (the "Portfolios") of
The Fulcrum Trust (the "Trust"), which is an open-end management investment
company. The Trust was organized as a Massachusetts business trust on September
8, 1993 and commenced operations on February 1, 1996. Prior to September 1,
1998, the Trust's name was "The Palladian Trust."
DESCRIPTION OF THE PORTFOLIOS OF THE TRUST AND THEIR INVESTMENTS AND RISKS
The Trust is a diversified open-end management investment company. The Trust
currently offers shares of five different "series" or Portfolios. It is expected
that one Portfolio will be dissolved on or about July 1, 2000. Each Portfolio
is, for investment purposes, a separate investment fund.
Shares of the Portfolios may be sold only to: (1) life insurance company
separate accounts (the "Separate Accounts") to serve as the underlying
investment medium for variable annuity and variable life insurance contracts;
(2) qualified retirement plans, as permitted by Treasury Regulations; and (3)
life insurance companies and advisers to the Portfolios and their affiliates.
This Statement of Additional Information is designed to elaborate upon the
discussion of certain securities and investment techniques which are described
in the Trust's Prospectus. The more detailed information contained herein is
intended solely for investors who have read the Prospectus and are interested in
a more detailed explanation of certain aspects of some of the Portfolios'
securities and some investment techniques. Some of the Portfolios' investment
techniques are described only in the Prospectus and are not repeated in this
SAI. Captions and defined terms in this SAI generally correspond to like
captions and terms in the Portfolios' Prospectus.
For a description of the Portfolios' principal investment strategies and risks,
types of investments each Portfolio may acquire and certain investment
techniques it may utilize, see "Principal Investment Strategies and Risks" and
"Other Investment Strategies and Risks" in the Trust Prospectus. Following are
descriptions of additional Portfolio strategies, policies and restrictions.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
THE GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
The Portfolio may invest up to 5% of its assets in high yield/high risk debt
securities. When the Portfolio Manager believes that a defensive investment
posture is warranted or when opportunities for capital appreciation do not
appear attractive, the Portfolio may temporarily invest all or a portion of its
assets in short-term money market instruments, such as obligations of the U.S.
Government and its agencies and instrumentalities, high-quality commercial paper
and bank certificates of deposit and time deposits and repurchase agreements
with respect to such instruments. The Portfolio may not achieve its investment
objective while using a temporary defensive policy.
Examples of companies in which the Portfolio may invest are those involved in
the following products and services: emerging technologies combining television,
telephone and computer systems; regular telephone service; wireless
communications services and equipment, including cellular telephone data and
voice transmission; electronic components and communications equipment; video
conferencing; electronic mail; local and wide area networking; linkage of data
and word processing systems; publishing and information systems; broadcasting,
including television and radio; cable television systems and networks; wireless
cable television and other emerging distribution technologies; the creation,
packaging, distribution, and ownership of entertainment programming; computer
hardware and software and other equipment used in the creation and distribution
of entertainment programming; interactive and multimedia programming including
home shopping and multiplayer games; and advertising agencies and niche
advertising mediums such as in-store or direct mail.
The Portfolio Manager will allocate the Portfolio's assets among securities of
countries and in currency denominations and industry sectors where opportunities
for meeting the Portfolio's investment objective are expected to be the most
attractive. The Portfolio may invest substantially in securities denominated in
one or more foreign currencies.
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The governments of some foreign countries have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). The Portfolio Manager believes that
privatizations in the telecommunications industry may offer opportunities for
significant capital appreciation and intends to invest assets of the Portfolio
in privatizations in appropriate circumstances. In certain foreign countries,
the ability of foreign entities such as the Portfolio to participate in
privatizations may be limited by local law and/or the terms on which the
Portfolio may be permitted to participate may be less advantageous than those
afforded local investors. There can be no assurance that foreign governments
will continue to sell companies currently owned or controlled by them or that
privatization programs will be successful.
THE INTERNATIONAL GROWTH PORTFOLIO
When allocating the Portfolio's investments among geographic regions and
individual countries, the Portfolio Manager considers various criteria, such as
prospects for relative economic growth among countries, expected levels of
inflation, government policies influencing business conditions, and the outlook
for currency relationships.
The Portfolio Manager may invest the Portfolio's assets in all types of
securities, most of which are denominated foreign currencies. The Portfolio does
not place any emphasis on dividends or interest income except when the Portfolio
Manager believes this income will have a favorable influence on the market value
of the security. The Portfolio may invest in indexed securities whose value
depends on the price of foreign currencies, commodities, securities indices, or
other financial indicators. In the normal course of managing the Portfolio, the
Portfolio Manager may invest a portion of the Portfolio's assets in U.S. and
foreign government obligations and money market securities (including repurchase
agreements) when the Portfolio has monies not yet invested, it has sold one
security and is waiting to buy another one, so that it will be prepared to meet
redemption requests, or to earn a return on available cash balances. When market
conditions warrant, the Portfolio Manager can make substantial temporary
defensive investments in U.S. government obligations or investment-grade
obligations of companies incorporated in and having principal business
activities in the United States. The Portfolio may not achieve its investment
objective while using a temporary defensive policy.
THE GROWTH PORTFOLIO
The Portfolio may also invest in foreign equity securities, foreign equity-type
investments, investment grade debt securities, high yield/high risk debt
securities (up to 5% of assets), futures contracts and options, money market
investments and other securities. For temporary defensive purposes, the
Portfolio may invest all or part of its assets in investment grade debt
securities or money market instruments. The Portfolio may not achieve its
investment objective while using a temporary defensive policy.
THE VALUE PORTFOLIO
The Portfolio may invest up to 5% of its assets in high yield/high risk debt
securities. When the Portfolio Manager believes that a defensive investment
posture is warranted or when opportunities for capital appreciation do not
appear attractive, the Portfolio may temporarily invest all or a portion of its
assets in short-term money market instruments, such as obligations of the U.S.
Government and its agencies and instrumentalities, high-quality commercial paper
and bank certificates of deposit and time deposits and repurchase agreements
with respect to such instruments. The Portfolio may not achieve its investment
objective while using a temporary defensive policy.
STRATEGIC INCOME PORTFOLIO
The Strategic Income Portfolio may consider making carefully selected
investments in below investment-grade debt securities of issuers in the United
States and in foreign markets.
The Strategic Income Portfolio also may invest up to 5% of its assets in loan
participations and assignments. When the Portfolio Manger believes that a
defensive investment posture is warranted or when opportunities for capital
appreciation do not appear attractive, the Portfolio may temporarily invest all
or a portion of its assets in short-term money market instruments, such as
obligations and time deposits and repurchase agreements with respect to such
instruments. The Portfolio may not achieve its investment objective while using
a temporary defensive policy.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective as set forth under "Objectives, Strategies
and Risks" in the Prospectus, together with the investment restrictions set
forth below, are fundamental and may not be changed with respect to any
Portfolio without the approval of a majority of the outstanding voting shares of
that Portfolio. The vote of a majority of
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the outstanding voting securities of a Portfolio means the vote, at an annual or
special meeting, of the lesser of (a) 67% or more of the voting securities
present at such meeting, if the holders of more than 50% of the outstanding
voting securities of such Portfolio are present or represented by proxy; or (b)
more than 50% of the outstanding voting securities of such Portfolio. None of
the Portfolios will:
(1) Make an investment unless, when considering all its other
investments, 75% of the value of a Portfolio's assets would consist of
cash, cash items, obligations of the United States government, its
agencies or instrumentalities, securities of other investment companies,
and other securities. For purposes of this restriction, "other
securities" are limited for each issuer to not more than 5% of the value
of a Portfolio's assets and to not more than 10% of the issuer's
outstanding voting securities held by the Trust as a whole. Some
uncertainty exists as to whether certain of the types of bank obligations
in which a Portfolio may invest, such as certificates of deposit and
bankers' acceptances, should be classified as "cash items" rather than
"other securities" for purposes of this restriction, which is a
diversification requirement under the 1940 Act. Interpreting most bank
obligations as "other securities" limits the amount a Portfolio may
invest in the obligations of any one bank to 5% of its total assets. If
there is an authoritative decision that any of these obligations are not
"securities" for purposes of this diversification test, this limitation
would not apply to the purchase of such obligations;
(2) Invest in a security if more than 25% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of issuers in any particular industry, except (a) that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements
with respect thereto), and to securities or obligations issued by banks,
as permitted by the SEC; and (b) that the Global Interactive/Telecomm
Portfolio may invest more than 25% of its total assets in the public
utilities industry and may invest more than 25% of its total assets in
the telecommunications industry;
(3) Purchase or sell real estate, except that a Portfolio may invest in
securities secured by real estate or real estate interests or issued by
companies in the real estate industry or which invest in real estate or
real estate interests;
(4) Buy or sell commodities or commodity contracts, except that the
Portfolio may purchase and sell futures contracts and related options,
foreign currency, forward foreign currency exchange contracts, and gold
and other precious metals;
(5) Purchase securities on margin (except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities),
except a Portfolio engaged in transactions in options, futures, and
options on futures may make margin deposits in connection with those
transactions, except that effecting short sales will be deemed not to
constitute a margin purchase for purposes of this restriction;
(6) Lend any funds or other assets, except that a Portfolio may,
consistent with its investment objective and policies:
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the Board of Trustees;
(7) Issue senior securities, except insofar as a Portfolio may be deemed
to have issued a senior security by reason of borrowing money in
accordance with that Portfolio's borrowing policies, or in connection
with any repurchase agreement, and except, for purposes of this
investment restriction, collateral or escrow arrangements with respect to
the making of short sales, purchase or sale of futures contracts or
related options, purchase or sale of forward currency contracts, writing
of options, and collateral arrangements with respect to margin or other
deposits respecting futures contracts, related options, and forward
currency contracts are not deemed to be an issuance of a senior security;
(8) Act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, a Portfolio may
be deemed to be an underwriter under the federal securities laws; and
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(9) Borrow money or pledge, mortgage, or hypothecate its assets, except
that a Portfolio may: (a) borrow from banks, but only if immediately
after each borrowing and continuing thereafter there is asset coverage of
300%; and (b) enter into reverse repurchase agreements and transactions
in options, futures, options on futures, and forward currency contracts.
INVESTMENT STRATEGIES AND TECHNIQUES
The Portfolios may invest in the following securities and make use of the
following investment strategies and techniques:
DEBT SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may invest in debt securities of domestic or foreign issuers
(both U.S. dollar denominated and non-U.S. dollar denominated). All Portfolios
may also invest in obligations of international organizations such as the
International Bank for Reconstruction and Development (the World Bank).
The investment return on a corporate debt security reflects interest earnings
and changes in the market value of the security. The market value of corporate
debt obligations may be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the securities may not
be able to meet their obligations on interest or principal payments at the time
called for by an instrument. Bonds rated BBB or Baa, which are considered
medium-grade category bonds, do not have economic characteristics that provide
the high degree of security with respect to payment of principal and interest
associated with higher rated bonds, and generally have some speculative
characteristics. A bond will be placed in this rating category where interest
payments and principal security appear adequate for the present, but economic
characteristics that provide longer term protection may be lacking. Any bond,
and particularly those rated BBB or Baa, may be susceptible to changing
conditions, particularly to economic downturns, which could lead to a weakened
capacity to pay interest and principal.
High yield/high risk debt securities involve significant risks. They are
considered predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
The market value of the securities also tend to be more sensitive than higher
rated securities to news about the issuer and changes in overall economic
conditions. In addition, markets for lower-rated securities may be more limited
than for higher-rated securities.
New issues of certain debt securities are often offered on a when-issued or
firm-commitment basis; that is, the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment, but delivery and payment
for the securities normally take place after the customary settlement time. The
value of when-issued securities or securities purchased on a firm-commitment
basis may vary prior to and after delivery depending on market conditions and
changes in interest rate levels. However, the Portfolios will not accrue any
income on these securities prior to delivery. The Portfolios will maintain in a
segregated account with its custodian an amount of cash or high quality debt
securities equal (on a daily marked-to-market basis) to the amount of its
commitment to purchase the when-issued securities or securities purchased on a
firm-commitment basis.
Many securities of foreign issuers are not rated by Moody's or Standard and
Poor's; therefore, the selection of such issuers depends, to a large extent, on
the credit analysis performed or used by the Portfolio Manager.
MORTGAGE-BACKED SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
GNMA CERTIFICATES. Government National Mortgage Association ("GNMA")
certificates are mortgage-backed securities representing part ownership of a
pool of mortgage loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. Government. GNMA is a wholly
owned U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks, and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages.
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Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a periodic payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
periodic payments made by the individual borrowers on the residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Mortgage-backed securities issued by GNMA
are described as "modified pass-through" securities. These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, at the scheduled payment dates, regardless of whether
or not the mortgagor actually makes the payment. Although GNMA guarantees timely
payment even if homeowners delay or default, tracking the "pass-through"
payments may, at times, be difficult. Expected payments may be delayed due to
the delays in registering the newly traded paper securities. The custodian's
policies for crediting missed payments while errant receipts are tracked down
may vary. Other mortgage-backed securities, such as those of the Federal Home
Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage
Association ("FNMA"), trade in book-entry form and should not be subject to the
risk of delays in timely payment of income.
Although the mortgage loans in the pool will have maturities of up to 30 years,
the actual average life of the GNMA certificates typically will be substantially
less because the mortgages will be subject to normal principal amortization and
may be prepaid prior to maturity. Early repayments of principal on the
underlying mortgages may expose a Portfolio to a lower rate of return upon
reinvestment of principal. Prepayment rates vary widely and may be affected by
changes in market interest rates. In periods of falling interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of
the GNMA certificates. Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
GNMA certificates. Accordingly, it is not possible to accurately predict the
average life of a particular pool. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the certificates. Due to the
prepayment feature and the need to reinvest prepayments of principal at current
rates, GNMA certificates can be less effective than typical bonds of similar
maturities at "locking in" yields during periods of declining interest rates,
although they may have comparable risks of decline in value during periods of
rising interest rates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. Government-related guarantors (i.e.,
not backed by the full faith and credit of the U.S. Government) include the FNMA
and the FHLMC. FNMA, a federally chartered and privately owned corporation,
issues pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest,
but this guarantee is not backed by the full faith and credit of the U.S.
Government. FNMA also issues REMIC Certificates, which represent an interest in
a trust funded with FNMA Certificates. REMIC Certificates are guaranteed by
FNMA, and not by the full faith and credit of the U.S. Government.
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks, credit unions,
and mortgage bankers. FHLMC, a corporate instrumentality of the United States,
was created by Congress in 1970 for the purpose of increasing the availability
of mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCS") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal and maintains reserves to protect holders against losses due to
default. PCS are not backed by the full faith and credit of the U.S. Government.
The guarantees for both FNMA and FHLMC do not extend to the securities value or
yield, which are likely to fluctuate inversely with fluctuations in interest
rate. As is the case with GNMA certificates, the actual maturity and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. A CMO is a security
issued by a corporation or a U.S. government instrumentality that is backed by a
portfolio of mortgages or mortgage-backed securities. The issuer's obligation to
make interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. CMOs are partitioned into several
classes with a ranked priority by which classes of obligations are redeemed.
Similar to a bond, interest and prepaid principal are paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
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typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying investors, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner-than-desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple Series
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third-party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to the principal; a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begin to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
OTHER MORTGAGE-BACKED SECURITIES. Commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers also create pass-through pools of conventional
residential mortgage loans. In addition, such issuers may be the originators
and/or servicers of the underlying mortgage loans as well as the guarantors of
the mortgage-backed securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government or agency guarantees of
payments in the former pools. Timely payment of interest and principal of these
pools may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters of credit. The
insurance and guarantees are issued by governmental entities, private insurers,
and the mortgage poolers. Such insurance, guarantees, and the creditworthiness
of the issuers thereof will be considered in determining whether a
mortgage-backed security meets a Portfolio's investment quality standards. There
can be no assurance that the private insurers or guarantors can meet their
obligations under the insurance policies or guarantee arrangements.
All Portfolios may buy mortgage-backed securities without insurance or
guarantees, if the Portfolio Manager determines that the securities meet a
Portfolio's quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. A Portfolio will not purchase mortgage-backed
securities or any other assets which, in the opinion of the Portfolio Manager,
are illiquid if, as a result, more than 15% of the value of a Portfolio's net
assets will be illiquid. As new types of mortgage-backed securities are
developed and offered to investors, the Portfolio Manager will, consistent with
a Portfolio's investment objectives, policies, and quality standards, consider
making investments in such new types of mortgage-backed securities.
ASSET--BACKED SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may invest in asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, such as automobile or credit card receivables.
Asset-backed securities present certain risks, including the risk that the
underlying obligor on the asset, such as the automobile purchaser or the credit
card holder, may default on his or her obligation. In addition, asset-backed
securities often do not provide a security interest in the related collateral.
For example, credit card receivables are generally unsecured, and the pool of
automobile receivables may not include the security interests in those
automobiles. In general, however, these type of loans have a shorter average
life than mortgage loans and are less likely to have substantial prepayments.
Two types of asset-backed securities are "CARS-SM-" ("Certificates for
Automobile Receivables-SM-") and Credit Card Receivable Securities.
VARIABLE AND FLOATING RATE SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
Variable rate securities provide for automatic establishment of a new interest
rate at fixed intervals (E.G., daily, monthly, semi-annually, etc.). Floating
rate securities provide for automatic adjustment of the interest rate whenever
some
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specified interest rate index changes. The interest rate on variable or floating
rate securities is ordinarily determined by reference to or is a percentage of a
bank's prime rate, the 90-day U.S. Treasury bill rate, the rate of return on
commercial paper or bank certificates of deposit, an index of short-term
interest rates, or some other objective measure.
Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par value. In many
cases, the demand feature can be exercised at any time on 7 days' notice; in
other cases, the demand feature is exercisable at any time on 30 days' notice or
on similar notice at intervals of not more than one year. Some securities which
do not have variable or floating interest rates may be accompanied by puts
producing similar results and price characteristics.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may invest in certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt obligations issued by commercial banks or
savings and loan associations ("S&Ls"). Certificates of deposit are receipts
from a bank or an S&L for funds deposited for a specified period of time at a
specified rate of return. Time deposits in banks or S&Ls are generally similar
to certificates of deposit, but are uncertificated. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international commercial transactions. Each Portfolio may also invest in
obligations of foreign branches of commercial banks and foreign banks so long as
the securities are U.S. dollar-denominated.
The Portfolios will not invest in obligations issued by a commercial bank or S&L
unless:
(i) the bank or S&L has total assets of at least $1 billion, or the
equivalent in other currencies, and the institution has outstanding
securities rated A or better by Moody's or Standard and Poor's, or,
if the institution has no outstanding securities rated by Moody's
or Standard & Poor's, it has, in the determination of the Portfolio
Manager, similar creditworthiness to institutions having
outstanding securities so rated;
(ii) in the case of a U.S. bank or S&L, its deposits are insured
by the Federal Deposit Insurance Corporation or the Savings
Association Insurance Fund, as the case may be; and
(iii) in the case of a foreign bank, the security is, in the
determination of the Portfolios' Portfolio Manager, of an investment
quality comparable with other debt securities which may be purchased by
the Portfolios. These limitations do not prohibit investments in
securities issued by foreign branches of U.S. banks, provided such U.S.
banks meet the foregoing requirements.
Obligations of foreign banks involve somewhat different investment risks than
those affecting obligations of U.S. banks, which include: (i) the possibility
that their liquidity could be impaired because of future political and economic
developments; (ii) their obligations may be less marketable than comparable
obligations of U.S. banks; (iii) a foreign jurisdiction might impose withholding
taxes on interest income payable on those obligations; (iv) foreign deposits may
be seized or nationalized; (v) foreign governmental restrictions, such as
exchange controls, may be adopted which might adversely affect the payment of
principal and interest on those obligations; and (vi) the selection of those
obligations may be more difficult because there may be less publicly available
information concerning foreign banks and/or because the accounting, auditing,
and financial reporting standards, practices and requirements applicable to
foreign banks may differ from those applicable to U.S. banks. Foreign banks are
not generally subject to examination by any U.S. Government agency or
instrumentality.
COMMERCIAL PAPER (APPLICABLE TO ALL PORTFOLIOS)
Commercial paper includes short-term unsecured promissory notes, variable rate
demand notes, and variable note master demand notes issued by domestic and
foreign bank holding companies, corporations, and financial institutions, as
well as similar taxable instruments issued by government agencies and
instrumentalities. All commercial paper purchased by the Portfolios must be, the
time of investment, (i) rated "P-1" by Moody's or "A-1" by S&P, (ii) issued or
guaranteed as to principal and interest by issuers having an existing debt
security rating of "Aa" or better by Moody's or "AA" by S&P, or (iii) securities
which, if not rated, are in the opinion of the Portfolio Manager of an
investment quality comparable to rated commercial paper in which the Portfolio
may invest.
Variable amount master demand notes are obligations that permit the investment
of fluctuating amounts at varying rates of interest pursuant to direct
arrangements between a Portfolio, as lender, and the borrower. These notes
permit
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daily changes in the amounts borrowed. The lender has the right to increase or
to decrease the amount under the note at any time up to the full amount provided
by the note agreement; and the borrower may prepay up to the full amount of the
note without penalty. Because variable amount master demand notes are direct
lending arrangements between the lender and borrower, and because no secondary
market exists for those notes, such instruments will probably not be traded.
However, the notes are redeemable (and thus immediately repayable by the
borrower) at face value, plus accrued interest, at any time. In connection with
master demand note arrangements, the Portfolio Manager will monitor, on an
ongoing basis, the earning power, cash flow, and other liquidity ratios of the
borrower and its ability to pay principal and interest on demand. The Portfolio
Manager also will consider the extent to which the variable amount master demand
notes are backed by bank letters of credit. These notes generally are not rated
by Moody's or S&P; the Portfolio may invest in them only if the Portfolio
Manager believes that at the time of investment the notes are of comparable
quality to the other commercial paper in which the Portfolio may invest. Master
demand notes are considered by the Portfolio to have a maturity of one day,
unless the Portfolio Manager has reason to believe that the borrower could not
make immediate repayment upon demand. See Appendix A herein for a description of
Moody's and S&P ratings applicable to commercial paper.
REPURCHASE AGREEMENTS (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may enter into repurchase agreements with banks and
broker-dealers under which they acquire securities subject to an agreement with
the seller to repurchase the securities at an agreed-upon time and price. If the
seller should default on its obligation to repurchase the securities, the
Portfolio may experience delays or difficulties in exercising its right to
realize a gain upon the securities held as collateral and might incur a loss if
the value of the securities should decline.
The term of a repurchase agreement is generally quite short, possibly overnight
or for a few days, although it may extend over a number of months (up to one
year) from the date of delivery. The resale price is in excess of the purchase
price by an amount which reflects an agreed-upon market rate of return,
effective for the period of time the Portfolio is invested in the security. This
results in a fixed rate of return protected from market fluctuations during the
period of the agreement. This rate is not tied to the coupon rate on the
security subject to the repurchase agreement.
A Portfolio may engage in repurchase transactions in accordance with guidelines
approved by the Board of Trustees of the Trust, which include monitoring the
creditworthiness of the parties with which a Portfolio engages in repurchase
transactions, obtaining collateral at least equal in value to the repurchase
obligation, and marking the collateral to market on a daily basis.
A Portfolio may not enter into a repurchase agreement having more than seven
days remaining to maturity if, as a result, such agreements together with any
other securities that are not readily marketable, would exceed 15% of the net
assets of the Portfolio. If the seller should become bankrupt or default on its
obligations to repurchase the securities, a Portfolio may experience delay or
difficulties in exercising its rights to the securities held as collateral and
might incur a loss if the value of the securities should decline. A Portfolio
also might incur disposition costs in connection with liquidating the
securities.
REVERSE REPURCHASE AGREEMENTS (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may enter into reverse repurchase agreements with banks and
broker-dealers. Those agreements have the characteristics of borrowing and
involve the sale of securities held by a Portfolio with an agreement to
repurchase the securities at an agreed-upon price and date, which reflect a rate
of interest paid for the use of funds for the period. Generally, the effect of
such a transaction is that a Portfolio can recover all or most of the cash
invested in the securities involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep some of the interest
income associated with those securities. Such transactions are only advantageous
if the Portfolio has an opportunity to earn a greater rate of interest on the
cash derived from the transaction than the interest cost of obtaining that cash.
A Portfolio may be unable to realize a return from the use of the proceeds equal
to or greater than the interest required to be paid.
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OPTIONS (APPLICABLE TO ALL PORTFOLIOS)
The Portfolios may purchase and sell (I.E., write) put and call options on
equity securities, debt securities, securities indices, and foreign currencies.
An option gives the owner the right to buy or sell securities at a predetermined
exercise price for a given period of time.
Although options will be primarily used to minimize principal fluctuations or to
generate additional premium income, they do involve certain risks. The Portfolio
Manager may not correctly anticipate movements in the relevant markets, thus
causing losses on the Portfolio's options positions.
A position in an exchange-traded option may be closed out only on an exchange,
board of trade or other trading facility which provides a secondary market for
an option of the same series. Although the Portfolios will generally purchase or
write only those exchange-traded options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or otherwise may exist. In
such event it might not be possible to effect closing transactions in particular
options, with the result that the Portfolio would have to exercise its options
in order to realize any profit and would incur brokerage commissions upon the
exercise of such options and upon the subsequent disposition of underlying
securities acquired through the exercise of call options or upon the purchase of
underlying securities for the exercise of put options. If a Portfolio as a
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide to be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
The purchase and sale of over-the-counter ("OTC") options will also be subject
to certain risks. Unlike exchange-traded options, OTC options generally do not
have a continuous liquid market. Consequently, a Portfolio will generally be
able to realize the value of an OTC option it has purchased only by exercising
it or reselling it to the dealer who issued it. Similarly, when a Portfolio
writes an OTC option, it generally will be able to close out the OTC option
prior to its expiration only by entering into a closing purchase transaction
with the dealer to which the Portfolio originally wrote the OTC option. There
can be no assurance that a Portfolio will be unable to liquidate an OTC option
at a favorable price at any time prior to expiration. In the event of insolvency
of the other party, the Portfolio may be unable to liquidate an OTC option.
OPTIONS ON EQUITY SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
The Portfolios may purchase and write (i.e., sell) put and call options on
equity securities that are traded on U.S. securities exchanges, are listed on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ"), or that result from privately negotiated transactions with
broker-dealers ("OTC options"). A call option is a short-term contract pursuant
to which the purchaser or holder, in return for a premium paid, has the right to
buy the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. A put option is a
similar contract which gives the purchaser or holder, in return for a premium,
the right to sell the underlying security at a specified price during the term
of the option. The writer of the put, who receives the premium, has the
obligation to buy the underlying security at the exercise price upon exercise by
the holder of the put.
A Portfolio will write only "covered" options on stocks. A call option is
covered if: (1) the Portfolio owns the security underlying the option; or (2)
the Portfolio has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional consideration held in a
segregated account) upon conversion or exchange of other securities it holds; or
(3) the Portfolio holds on a share-for-share basis a call on the
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same security as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the
Portfolio liquid assets in a segregated account. A put option is covered if: (1)
the Portfolio deposits and maintains with in a segregated account liquid assets
having a value equal to or greater than the exercise price of the option; or (2)
the Portfolio holds on a share-for-share basis a put on the same security as the
put written where the exercise price of the put held is equal to or greater than
the exercise price of the put written or less than the exercise price if the
difference is maintained by the Portfolio in liquid assets in a segregated
account.
A Portfolio may also purchase "protective puts" (i.e., put options acquired for
the purpose of protecting a Portfolio security from a decline in market value).
The loss to the Portfolio is limited to the premium paid for, and transaction
costs in connection with, the put plus the initial excess, if any, of the market
price of the underlying security over the exercise price. However, if the market
price of the security underlying the put rises, the profit the Portfolio
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount (net of transaction costs) for which the put may be
sold.
A Portfolio may also purchase putable and callable equity securities, which are
securities coupled with a put or call option provided by the issuer.
A Portfolio may purchase call options for hedging and investment purposes. No
Portfolio intends to invest more than 5% of its net assets at any one time in
the purchase of call options on stocks.
If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" by buying an option of the
same series as the option previously written. Similarly, the holder of an option
may liquidate his or her position by exercise of the option or by effecting a
"closing sale transaction" by selling an option of the same series as the option
previously purchased. There is no guarantee that closing purchase or closing
sale transactions can be effected.
OPTIONS ON DEBT SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
The Portfolios may purchase and write exchange-traded and OTC put and call
options on debt securities. Options on debt securities are similar to options on
stock, except that the option holder has the right to take or make delivery of a
debt security, rather than stock.
A Portfolio will write only "covered" options. Options on debt securities are
covered in the same manner as options on stocks, discussed above, except that,
in the case of call options on U.S. Treasury Bills, the Portfolio might own U.S.
Treasury Bills of a different series from those underlying the call option, but
with a principal amount and value corresponding to the option contract amount
and a maturity date no later than that of the securities deliverable under the
call option.
A Portfolio may also write straddles (i.e., a combination of a call and a put
written on the same security at the same strike price where the same issue of
the security is considered as the cover for both the put and the call). In such
cases, the Portfolio will also segregate or deposit for the benefit of the
Portfolio's broker liquid assets equivalent to the amount, if any, by which the
put is "in the money." It is contemplated that each Portfolio's use of straddles
will be limited to 5% of the Portfolio's net assets (meaning that the securities
used for cover or segregated as described above will not exceed 5% of the
Portfolio's net assets at the time the straddle is written).
A Portfolio may purchase "protective puts" in an effort to protect the value of
a security that it owns against a substantial decline in market value.
Protective puts are described in OPTIONS ON EQUITY SECURITIES above. A Portfolio
may wish to protect certain securities against a decline in market value at a
time when put options on those particular securities are not available for
purchase. A Portfolio may therefore purchase a put option on securities it does
not hold. While changes in the value of the put should generally offset changes
in the value of the securities being hedged, the correlation between the two
values may not be as close in these transactions as in transactions in which the
Portfolio purchases a put option on an underlying security it owns.
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A Portfolio may also purchase call options on debt securities for hedging or
investment purposes. No Portfolio currently intends to invest more than 5% of
its net assets at any one time in the purchase of call options on debt
securities.
A Portfolio may also purchase putable and callable debt securities, which are
securities coupled with a put or call option provided by the issuer.
A Portfolio may enter into closing purchase or sale transactions in a manner
similar to that discussed above in connection with options on equity securities.
OPTIONS ON STOCK INDICES (APPLICABLE TO ALL PORTFOLIOS)
The Portfolios may purchase and sell put and call options on stock indices
traded on national securities exchanges, listed on NASDAQ or that result from
privately negotiated transactions with broker-dealers ("OTC options"). Options
on stock indices are similar to options on stock except that, rather than the
right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the stock index upon which the option
is based is greater than in the case of a call, or less than, in the case of a
put, the strike price of the option. This amount of cash is equal to such
difference between the closing price of the index and the strike price of the
option times a specified multiple (the "multiplier"). If the option is
exercised, the writer is obligated, in return for the premium received, to make
delivery of this amount. Unlike stock options, all settlements are in cash, and
gain or loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.
A Portfolio will write only "covered" options on stock indices. A call option is
covered if the Fund follows the segregation requirements set forth in this
paragraph. When a Portfolio writes a call option on a broadly based stock market
index, it will segregate or put into escrow with its custodian or pledge to a
broker as collateral for the option, cash, Government securities or other liquid
assets, or "qualified securities" (defined below) with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts. A "qualified security" is an
equity security which is listed on a national securities exchange or listed on
NASDAQ against which the Portfolio has not written a stock call option and which
has not been hedged by the Portfolio by the sale of stock index futures. When a
Portfolio writes a call option on an industry or market segment index, it will
segregate or pledge to a broker as collateral for the option, cash, Government
securities or other liquid assets, or at least five qualified securities, all of
which are stocks of issuers in such industry or market segment, with a market
value at the time the option is written of not less than 100% of the current
index value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of the weighting of the industry or
market segment index and will represent at least 50% of the Portfolio's holdings
in that industry or market segment. No individual security will represent more
than 15% of the amount so segregated or pledged or in the case of broadly based
stock market stock options or 25% of such amount in the case of industry or
market segment index options. If at the close of business on any day the market
value of such qualified securities so segregated or pledged falls below 100% of
the current index value times the multiplier times the number of contracts, the
fund will so segregate or pledge an amount in cash, Government securities, or
other liquid assets equal in value to the difference. In addition, when a
Portfolio writes a call on an index which is in-the-money at the time the call
is written, it will segregate or pledge to the broker as liquid assets equal in
value to the amount by which the call is in-the-money times the multiplier times
the number of contracts. Any amount segregated pursuant to the foregoing
sentence may be applied to the Portfolio's obligation to segregate additional
amounts in the event that the market value of the qualified securities falls
below 100% of the current index value times the multiplier times the number of
contracts.
A call option is also covered if the Portfolio holds a call on the same index as
the call written where the strike price of the call held is equal to or less
than the strike price of the call written or greater than the strike price of
the call written if the difference is maintained by the Portfolio in liquid
assets in a segregated account.
A put option is covered if: (1) the Portfolio holds in a segregated account
liquid assets of a value equal to the strike price times the multiplier times
the number of contracts; or (2) the Portfolio holds a put on the same index as
the put written where the strike price of the put held is equal to or greater
than the
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strike price of the put written or less than the strike price of the put written
if the difference is maintained by the Portfolio in liquid assets in a
segregated account.
A Portfolio may purchase put and call options for hedging and investment
purposes. No Portfolio intends to invest more than 5% of its net assets at any
one time in the purchase of puts and calls on stock indices. A Portfolio may
effect closing sale and purchase transactions involving options on stock
indices, as described above in connection with stock options.
The distinctive characteristics of options on stock indices create certain risks
that are not present with stock options. Index prices may be distorted if
trading of certain stocks included in the index is interrupted. Trading in the
index options also may be interrupted in certain circumstances, such as if
trading were halted in a substantial number of stocks included in the index. If
this occurred, a Portfolio would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, may be
unable to exercise an option it holds, which could result in substantial losses
to the Portfolio. Price movements in a Portfolio's equity security holdings
probably will not correlate precisely with movements in the level of the index
and, therefore, in writing a call on a stock index a Portfolio bears the risk
that the price of the securities held by the Portfolio may not increase as much
as the index. In such event, the Portfolio would bear a loss on the call which
is not completely offset by movement in the price of the Portfolio's equity
securities. It is also possible that the index may rise when the Portfolio's
securities do not rise in value. If this occurred, the Portfolio would
experience a loss on the call which is not offset by an increase in the value of
its securities holdings and might also experience a loss in its securities
holdings.
In addition, when a Portfolio has written a call, there is also a risk that the
market may decline between the time the Portfolio has a call exercised against
it, at a price which is fixed as of the closing level of the index on the date
of exercise, and the time the Portfolio is able to sell stocks in its Portfolio.
As with stock options, the Portfolio will not learn that an index option has
been exercised until the day following the exercise date but, unlike a call on
stock where the Portfolio would be able to deliver the underlying securities in
settlement, the Portfolio may have to sell part of its stock Portfolio in order
to make settlement in cash, and the price of such stocks might decline before
they can be sold. This timing risk makes certain strategies involving more than
one option substantially more risky with options in stock indices than with
stock options.
There are also certain special risks involved in purchasing put and call options
on stock indices. If a Portfolio holds an index option and exercises it before
final determination of the closing index value for that day, it runs the risk
that the level of the underlying index may change before closing. If such a
change causes the exercise option to fall out of-the-money, the Portfolio will
be required to pay the difference between the closing index value and the strike
price of the option (times the applicable multiplier) to the assigned writer.
Although a Portfolio may be able to minimize the risk by withholding exercise
instructions until just before the daily cutoff time or by selling rather than
exercising an option when the index level is close to the exercise price, it may
not be possible to eliminate this risk entirely because the cutoff times for
index options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.
OPTIONS ON FOREIGN CURRENCIES (APPLICABLE TO ALL PORTFOLIOS)
The Portfolios may purchase and write put and call options on foreign currencies
traded on U.S. or foreign securities exchanges or boards of trade. Options on
foreign currencies are similar to options on stock, except that the option
holder has the right to take or make delivery of a specified amount of foreign
currency, rather than stock. A Portfolio's successful use of options on foreign
currencies depends upon the manager's ability to predict the direction of the
currency exchange markets and political conditions, which requires different
skills and techniques than predicting changes in the securities markets
generally.
FUTURES CONTRACTS (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may purchase and sell (i) interest rate and other debt related
futures contracts, (ii) stock index and other equity related futures contracts,
(iii) foreign currency futures contracts, (iv) futures contracts on gold and
other precious metals, and (v) options on these futures contracts. A futures
contract provides for the future sale by one party and purchase by the other
party of a specified amount of a particular financial instrument or commodity
for a specified price at a designated date, time, and place.
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A stock index futures contract is an agreement in which the seller of the
contract agrees to deliver to the buyer an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. In addition, the Portfolios may, for hedging purposes, purchase and sell
(a) futures contracts on interest-bearing securities (such as U.S. Treasury
bonds and notes) or interest rate indices (referred to collectively as "interest
rate futures contracts"); (2) futures contracts on foreign currencies or groups
of foreign currencies; and (3) futures contracts on gold and other precious
metals.
When the futures contract is entered into, each party deposits with a broker or
in a segregated custodial account approximately 5% of the contract amount,
called the "initial margin." Subsequent payments to and from the broker, called
the "variation margin," will be made on a daily basis as the underlying
security, index or rate fluctuates making the long and short positions in the
futures contracts more or less valuable, a process known as "marking to the
market."
All Portfolios may use futures contracts for the purpose of hedging positions
with respect to securities, interest rates, foreign currencies, and gold and
other precious metals. In addition, the Growth Portfolio may also use futures
contracts for non-hedging purposes (in other words, for investment purposes).
For example, the Portfolio Manager may invest in futures contracts rather than
investing directly in securities. The initial margins and premiums associated
with futures contracts used for non-hedging purposes will not exceed 5% of the
fair market value of the Portfolio's assets, taking into account unrealized
profits and losses on such futures contracts. The Portfolio may not purchase or
sell a futures contract for non-hedging purposes if immediately thereafter the
sum of the amount of margin deposits and premiums paid for related options would
exceed 5% of the market value of the Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS (APPLICABLE TO ALL PORTFOLIOS)
The Portfolios may enter into certain transactions involving options on futures
contracts. An option on a futures contract gives the purchaser or holder the
right, but not the obligation, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified price at any time during the option exercise period. The
writer of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and long position if the
option is a put). Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accomplished by
delivery of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. As an alternative to
exercise, the holder or writer of an option may terminate a position by selling
or purchasing an option of the same series. There is no guarantee that such
closing transactions can be effected. The Portfolios intend to utilize options
on futures contracts for the same purposes that they use the underlying futures
contracts.
Options on futures contracts are subject to risks similar to those described
above with respect to options on securities, options on stock indices, and
futures contracts. These risks include the risk that the Portfolio Manager may
not correctly predict changes in the market, the risk of imperfect correlation
between the option and the securities being hedged, and the risk that there
might not be a liquid secondary market for the option. There is also the risk of
imperfect correlation between the option and the underlying futures contract. If
there were no liquid secondary market for a particular option on a futures
contract, the Portfolio might have to exercise an option it held in order to
realize any profit and might continue to be obligated under an option it had
written until the option expired or was exercised. If a Portfolio were unable to
close out an option it had written on a futures contract, it would continue to
be required to maintain initial margin and make variation margin payments with
respect to the option position until the option expired or was exercised against
the Portfolio.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may purchase securities on a when-issued or delayed delivery
basis if the Portfolio holds, and maintains until the settlement date in a
segregated account, liquid assets in an amount sufficient to meet the purchase
price, or if the Portfolio enters into offsetting contracts for the forward sale
of other securities it owns. Purchasing securities on a when-issued or delayed
delivery basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Portfolios' other assets. Although a
Portfolio would generally purchase securities on a when-issued basis or enter
into forward commitments with the intention of acquiring securities, the
Portfolio may
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dispose of a when-issued or delayed delivery security prior to settlement if the
Portfolio Manager deems it appropriate to do so. The Portfolio may realize
short-term profits or losses upon such sales.
FOREIGN SECURITIES (APPLICABLE TO ALL PORTFOLIOS EXCEPT THE STRATEGIC INCOME
PORTFOLIO MAY NOT INVEST IN EQUITY SECURITIES OF FOREIGN ISSUERS)
All Portfolios, except the Strategic Income Portfolio may invest in equity
securities of foreign issuers. All Portfolios may invest in American Depository
Receipts ("ADRs"). All Portfolios may also invest in foreign government
securities and foreign debt securities, including obligations of foreign
branches of commercial banks and foreign banks. See the "Banking Industry and
Savings Industry Obligations" discussion in this section.
Each Portfolio is subject to the following guidelines for diversification of
foreign security investments. If a Portfolio has less than 20% of its assets in
foreign issuers, then all of such investment may be in issuers domiciled or
primarily traded in one country. If a Portfolio has at least 20% but less than
40% of its assets in foreign issuers, then such investment must be allocated to
issuers domiciled or primarily traded in at least two different countries.
Similarly, if a Portfolio has at least 40% but less than 60% of its assets in
foreign issuers, such investment must be allocated in at least three different
countries. Foreign investments must be allocated to at least four different
countries if at least 60% of a Portfolios' assets is in foreign issuers, and to
at least five different countries if at least 80% is in foreign issuers.
A Portfolio may have no more than 20% of its net asset value invested in
securities of issuers domiciled or primarily traded in any one foreign country,
except that a Portfolio may have up to 35% of its net asset value invested in
securities of issuers domiciled or primarily traded in any one of the following
countries: Australia, Canada, France, Japan, The United Kingdom, or Germany.
Investments in foreign securities offer potential benefits not available solely
in securities of domestic issuers by offering the opportunity to invest in
foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Since each of these Portfolios may
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the value of
securities in the portfolio and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, other foreign taxation, political or social instability,
or diplomatic developments that could adversely affect investments in those
countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S. companies. Transactional costs in
non-U.S. securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the U.S. A Portfolio might have
greater difficulty taking appropriate legal action with respect to foreign
investments in non-U.S. courts than with respect to domestic issuers in U.S.
courts. In addition, transactions in foreign securities may involve greater time
from the trade date until settlement than domestic securities transactions and
involve the risk of possible losses through the holding of securities by
custodians and securities depositories in foreign countries.
Dividend and interest income from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located and may not be
recoverable by a Portfolio or its investors.
ADRs are certificates issued by a U.S. bank or trust company representing the
right to receive securities of a foreign issuer deposited in a foreign
subsidiary or branch or a correspondent of that bank. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and may offer
U.S. investors more liquidity than the underlying securities.
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Investment in emerging markets countries presents risks in a greater degree
than, and in addition to, those presented by investment in foreign issuers in
general. A number of emerging market countries restrict, to varying degrees,
foreign investment in securities. Repatriation of investment income, capital,
and proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies of
developing countries have experienced significant declines against the U.S.
dollar in recent years, and devaluation may occur subsequent to investments in
those currencies by the Portfolio. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries.
Many of the emerging securities markets are relatively small, have low trading
volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility. There is a risk in emerging market countries that
a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country) or creation of government
monopolies, any of which may have a detrimental effect on a Portfolio's
investment.
FOREIGN CURRENCY TRANSACTIONS (APPLICABLE TO ALL PORTFOLIOS)
The Portfolios may enter into forward currency contracts and enter into currency
exchange transactions on a spot (i.e. cash) basis. A forward currency contract
is an obligation to purchase or sell a currency against another currency at a
future date and price as agreed upon by the parties. A Portfolio may either
accept or make delivery of the currency at the maturity of the forward contract
or, prior to maturity, enter into a closing transaction involving the purchase
or sale of an offsetting contract. A Portfolio will engage in forward currency
transactions in anticipation of or to protect itself against fluctuations in
currency exchange rates.
A Portfolio may enter into forward foreign currency contracts in two
circumstances. First, when a Portfolio enters into a contract for the purchase
or sale of a security denominated in a foreign currency, the Portfolio may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for a fixed amount of dollars for the purchase or sale of the
amount of foreign currency involved in the underlying transactions, the
Portfolio will be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and such foreign
currency during the period between the date on which the security is purchased
or sold and the date on which payment is made or received.
Second, when the Portfolio Manager believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract for a fixed amount of dollars to sell the amount
of foreign currency approximating the value of some or all of the Portfolios
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible since the future value of securities in foreign currencies
will change as a consequence of market movements in the value of these
securities between the date on which the forward contract is entered into and
the date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. None of the Portfolios will enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolios to deliver an amount
of foreign currency in excess of the value of the Portfolios securities or other
assets denominated in that currency.
A Portfolio will place liquid assets into a segregated account of the Portfolio
in an amount equal to the value of the Portfolio's total assets committed to the
consummation of forward foreign currency exchange contracts. If the value of the
assets placed in the segregated account declines, additional cash or securities
will be placed in the account on a daily basis so that the value of the account
will equal the amount of the Portfolio's commitments with respect to such
contracts.
At the maturity of a forward contract, a Portfolio may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast the market value of a particular portfolio security
at the expiration of the contract. Accordingly, if a decision is made to sell
the security and make delivery of the foreign currency, it may be necessary
17
<PAGE>
for the Portfolio to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency that the Portfolio is obligated to
deliver.
If the Portfolio retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or a loss (as described below) to the extent
that there has been movement in forward contract prices. Should forward prices
decline during the period between the Portfolios entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Portfolio will suffer a loss to the extent that the price
of the currency it has agreed to purchase exceeds the price of the currency it
has agreed to sell.
Forward contracts are not traded on regulated commodities exchanges. There can
be no assurance that a liquid market will exist when a Portfolio seeks to close
out a forward currency position, and in such an event, a Portfolio might not be
able to effect a closing purchase transaction at any particular time. In
addition, a Portfolio entering into a forward foreign currency contract incurs
the risk of default by the counter party to the transaction. The CFTC has
indicated that it may in the future assert jurisdiction over certain types of
forward contracts in foreign currencies and attempt to prohibit certain entities
from engaging in such foreign currency forward transactions.
Although the Portfolios value their assets daily in terms of U.S. dollars, they
do not intend physically to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. They will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
ILLIQUID SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
A significant institutional trading market has developed in many unregistered
securities relying on Rule 144A, which permits resale among certain
institutional investors of certain unregistered securities. In determining
whether such securities should be considered liquid, the Portfolios will
consider the following factors, among others: (1) the frequency of the trades
and the quotes for the security; (2) the number of dealers willing to purchase
or sell the security and the number of potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers, and the mechanics
of the transfer).
WARRANTS (APPLICABLE TO ALL PORTFOLIOS)
Each Portfolio may invest up to 5% of its net assets in warrants (not including
those that have been acquired in units or attached to other securities),
measured at the time of acquisition. No Portfolio may acquire a warrant not
listed on the New York or American Stock Exchanges if, after the purchase, more
than 2% of the Portfolio's assets would be invested in such warrants.
The holder of a warrant has the right to purchase a given number of shares of a
particular issuer at a specified price until expiration of the warrant. Such
investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move in tandem with the prices of the underlying securities, and are
speculative investments. They pay no dividends and confer no rights other than a
purchase option. If a warrant is not exercised by the date of its expiration,
the Portfolio will lose its entire investment in such warrant.
OTHER INVESTMENT COMPANIES (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may invest in shares issued by other investment companies. A
Portfolio is limited in the degree to which it may invest in shares of another
investment company in that it may not, at the time of the purchase, (1) acquire
more than 3% of the outstanding voting shares of the investment company, (2)
invest more than 5% of the Portfolios' total assets in the investment company,
or (3) invest more than 10% of the Portfolios' total assets in all investment
company holdings. As a shareholder in any investment company, a Portfolio will
bear its ratable share of the investment company's expenses, including
management fees in the case of a management investment company.
18
<PAGE>
SHORT SALES (APPLICABLE TO ALL PORTFOLIOS)
A short sale is a transaction in which the Portfolio sells a security it does
not own (but has borrowed) in anticipation of a decline in the market price of
the security. A Portfolio may make short sales to offset a potential decline in
a long position or a group of long positions, or if the Portfolio Manager
believes that a decline in the price of a particular security or group of
securities is likely.
When a Portfolio makes a short sale, the proceeds it receives are retained by
the broker until the Portfolio replaces the borrowed security. In order to
deliver the security to the buyer, the Portfolio must arrange through a broker
to borrow the security and, in so doing, the Portfolio becomes obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be. The Portfolio may have to pay a premium to borrow
the security. The Portfolio must also pay any dividends or interest payable on
the security until the Portfolio replaces the security.
The Portfolios' obligation to replace the security borrowed in connection with
the short sale will be secured by collateral deposited with the broker,
consisting of cash or U.S. Government securities or other securities acceptable
to the broker. In addition, with respect to any short sale, other than short
sales against the box, as discussed below, the Portfolios will be required to
deposit collateral consisting of liquid assets in a segregated account in an
amount such that the value of the sum of both collateral deposits is at all
times equal to at least 100% of the current market value of the securities sold
short. The deposits do not necessarily limit the Portfolios' potential loss on a
short sale, which may exceed the entire amount of the collateral.
If the price of the security sold short increases between the time of the short
sale and the time the Portfolios replaces the borrowed security, the Portfolio
will incur a loss, and if the price declines during this period, the Portfolio
will realize a capital gain. Any realized gain will be decreased, and any
incurred loss increased, by the amount of transactional costs and any premium,
dividend, or interest which the Portfolios may have to pay in connection with
such short sale.
A Portfolio may make a short sale only if, at the time the short sale is made
and after giving effect thereto, the market value of all securities sold short
is 25% or less of the value of its net assets and the market value of securities
sold short which are not listed on a national securities exchange does not
exceed 10% of the Portfolio's net assets. In addition, a Portfolio will not make
short sales of the securities of any one issuer to the extent of more than 2% of
the Portfolio's net assets, nor will a Portfolio make short sales of more than
2% of the outstanding securities of one class of any issuer. The Portfolios are
not required to liquidate an existing short sale position solely because a
change in market values has caused one or more of these percentage limitations
to be exceeded.
SHORT SALES AGAINST THE BOX (APPLICABLE TO ALL PORTFOLIOS)
A short sale "against the box" is a short sale where, at the time of the short
sale, a Portfolio owns or has the immediate and unconditional right, at no added
cost, to obtain the identical security. The Portfolios would enter into such a
transaction to defer a gain or loss for Federal income tax purposes on the
security owned by the Portfolio or to receive a portion of the interest earned
by the executing broker from the proceeds of the sale. Short sales against the
box are not subject to the percentage limitations on short sales described
above.
INVESTMENT IN GOLD AND OTHER PRECIOUS METALS (APPLICABLE TO ALL PORTFOLIOS)
All Portfolios may invest up to 10% of its total assets, in gold bullion and
coins and other precious metals (silver or platinum) bullion and in futures
contracts with respect to such metals. Each Portfolio may also engage in gold
futures contracts. (See "Futures Contracts" for further explanation of this
investment technique.) The Portfolios will further restrict the level of their
metal investments if necessary in order to comply with applicable regulatory
requirements. In order to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), each
Portfolio intends to manage its metal investments and/or futures contracts on
metals so that less than 10% of its gross income for tax purposes during any
fiscal year (the current limit on so-called non-qualifying income) is derived
from these and other sources that produce such non-qualifying income.
Metals will not be purchased in any form that is not readily marketable, and
gold coins will be purchased for their intrinsic value only, I.E., coins will
not be purchased for their numismatic value. Any metals purchased by the
Portfolios will be delivered to and stored with a qualified custodian bank.
Metal investments do not generate interest or dividend income and will subject
the Portfolios to higher custody and transactional costs than are normally
associated with the ownership of securities or futures contracts on precious
metals.
19
<PAGE>
Metal investments are considered speculative and are affected by various
worldwide economic, financial, and political factors. Prices may fluctuate
sharply over short time periods due to changes in inflation expectations in
various countries, metal sales by central banks of governments or international
agencies, speculation, changes in industrial and commercial demand, and
governmental prohibitions or restriction on the private ownership of certain
precious metals or minerals. At the present time, there are four major producers
of gold bullion: the Republic of South Africa, the United States, Canada, and
Australia. Political and economic conditions in these countries will have a
direct effect on the mining and distribution of gold and, consequently, on its
price.
LEVERAGE (APPLICABLE TO ALL PORTFOLIOS)
Each Portfolio may leverage its investments by purchasing securities with
borrowed money. In leveraging its investments, each Portfolio may borrow up to
33-1/3% of the value of its total assets (minus liabilities other than the
borrowing). Leveraging by means of borrowing will exaggerate the effect of any
increase or decrease in the value of portfolio securities on a Portfolios' net
asset value; money borrowed will be subject to interest and other costs (which
may include commitment fees and/or the cost of maintaining minimum average
balances), which may or may not exceed the income received from the securities
purchased with borrowed funds. The use of borrowing tends to result in a faster
than average movement, up or down, in the net asset value of the Portfolio's
shares. A Portfolio also may be required to maintain minimum average balances in
connection with such borrowing or to pay a commitment or other fee to maintain a
line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate.
Reverse repurchase agreements, short sales of securities, and short sales of
securities against the box will be included as borrowing subject to the
borrowing limitations described above. Securities purchased on a when-issued or
delayed delivery basis will not be subject to the Portfolio's borrowing
limitations to the extent that a Portfolio establishes and maintains liquid
assets in a segregated account equal to the Portfolio's obligations under the
when-issued or delayed delivery arrangement.
A Portfolio may, in connection with permissible borrowings, transfer as
collateral securities it owns.
INDEXED SECURITIES (APPLICABLE TO ALL PORTFOLIOS)
Each Portfolio may invest up to 5% of its assets in indexed securities. Indexed
securities values are linked to currencies, interest rates, commodities,
indices, or other financial inb dicators. Most indexed securities are short to
intermediate term fixed-income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (I.E.,
their value may increase or decrease if the underlying instrument appreciates),
and may have return characteristics similar to direct investments in the
underlying instrument or to one or more options on the underlying instrument.
Indexed securities may be more volatile than the underlying instrument itself.
PORTFOLIO TURNOVER
PORTFOLIO 1999 1998
Global Interactive/Telecomm Portfolio 45% 65%
International Growth Portfolio 57% 60%
Growth Portfolio 351% 573%
Value Portfolio 15% 70%
Strategic Income Portfolio 136% 407%
The Portfolio turnover for the Growth Fund was higher in 1998 than in 1999
because of a change in portfolio managers.
The Portfolio turnover for the Strategic Income Fund was higher in 1998 than in
1999 because of a change in portfolio managers.
20
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trust is managed by a Board of Trustees. The Trustees have overall
responsibility for implementation of the investment policies and operations of
the Portfolios of the Trust. The Board of Trustees of the Trust holds regular
quarterly meetings and at other times on an as needed basis. The affairs of the
Trust are conducted in accordance with the By-Laws adopted by the Trustees and
the applicable laws of the Commonwealth of Massachusetts, the state in which the
Trust is organized.
Set forth below is a list of the Trustees and Officers of the Trust, their
business addresses, and principal occupations during the past five years:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE POSITION HELD WITH TRUST PAST FIVE YEARS
<S> <C> <C>
George J. Sullivan, Jr. (57) Chairman of the Board; President Chief Executive Officer, Newfound Consultants, Inc.
Newfound Consultants, Inc. (financial consulting), 1995-
313 Congress Street, 2nd Floor C3 present; Chief Operating Officer, Noble Partners,
Boston, MA 02210 L.P. (investment advisory services), 1991-1995.
Tom N. Dallape (32)
Trustee; Vice President Vice President, The Hoffman Company Vice President/Partner (Real Estate).
18881 Von Karman Avenue Suite 150
Gordon Holmes (62) Trustee Lecturer, Bentley College, 1998 - Present, Lecturer
Bentley College - Dept of Accountancy and Executive in Residence, Boston University, 1997
Waltham, MA 02452 - 1998; Certified Public Accountant and Partner
with Tofias, Fleishman, Shapiro and Co., P.C.,
prior to 1997.
Paul T. Kane (43) Assistant Vice President Assistant Vice President, First Allmerica
440 Lincoln Street Treasurer (Principal Financial Life Insurance Company, since
Worcester, MA 01653 Accounting Officer) June 1999; Vice President/Treasurer
of Tax and Financial Services, BISYS Fund
Services, 1997- 999; Director of
Shareholder Reporting, Fidelity
Investments, 1992-1997
Ann K. Tripp (41) Vice President Vice President of Allmerica Asset Management,
440 Lincoln Street Inc. since 1994; Deputy Manager at Brown
Worcester, MA 01653 Brothers Harriman, 1989-1994
George M. Boyd (55) Secretary Counsel, First Allmerica since
440 Lincoln Street January 1997; Director, Mutual Fund
Worcester, MA 10653 Administration - Legal and Regulatory,
Investors Bank and Trust Company 1995-1996; Vice
President and Counsel, 440 Financial Group and First
Data Investor Services Group 1992-1995
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE POSITION HELD WITH TRUST PAST FIVE YEARS
<S> <C> <C>
Joseph W. MacDougall, Jr. (56) Assistant Secretary Vice President and Associate General Counsel,
440 Lincoln Street First Allmerica , 1986 - present
Worcester, MA 01653
</TABLE>
Listed below is the compensation paid to each Trustee by the Trust for the year
ended December 31, 1999. The Trust currently does not provide any pension or
retirement benefits for its Trustees or officers. Gordon Holmes also serves as a
trustee of the Allmerica Investment Trust, a mutual fund advised by Allmerica
Financial Investment Management Services, Inc.
<TABLE>
<CAPTION>
NAME OF PERSON AND AGGREGATE COMPENSATION TOTAL COMPENSATION FROM TRUST
POSITION FROM TRUST COMPLEX PAID TO TRUSTEES*
-------- ---------- -------------------------
<S> <C> <C>
George J. Sullivan, Jr. $7,500
Chairman of the Board; President ($1,500 for each Board Meeting) --
-------------------------------- ------------------------------- --
Tom N. Dallape $7,500
Trustee; Vice President --
----------------------- --
Gordon Holmes, Trustee $7,500 $29,500
---------------------- ------ -------
</TABLE>
* Includes two additional investment companies, Allmerica Investment Trust
and Allmerica Securities Trust
As of December 31, 1999, none of the trustees or officers directly owns shares
of the Portfolios. In addition, as of the date of this Statement of Additional
Information, the Trustees and Officers in the aggregate owned variable contracts
that entitled them to give voting instructions with respect to less than one
percent of the outstanding shares of the Portfolios.
Codes of Ethics
The Trust, Analytic Investors, Inc., Bee & Associates, Incorporated, and Gabelli
Asset Management, Inc. have each adopted codes of ethics, as required by Rule
17-1 under the Investment Company Act of 1940. These codes of ethics do not
prohibit personnel subject to the codes from trading for their personal
accounts, but do impose certain restrictions on such trading.
PRINCIPAL SHAREHOLDERS
Shares of the Portfolios may be sold only to: (1) life insurance company
separate accounts to serve as the underlying investment medium for variable
annuity and variable life insurance contracts; (2) qualified retirement plans,
as permitted by Treasury regulations; and (3) life insurance companies and
advisers to the portfolios and their affiliates. Listed below are the
approximate percentage ownerships as of February 1, 2000 for those shareholders
of record or those known by the Portfolio to own 5% or more of the outstanding
shares of a Portfolio.
Fulcrum Separate Account
of Allmerica Financial Life Insurance and Annuity Company (a Delaware
insurance company), 440 Lincoln Street, Worcester, MA 01653
Global Interactive/Telecomm Portfolio 75.59%
International Growth Portfolio 87.93%
Growth Portfolio 82.72%
Value Portfolio 78.90%
Strategic Income Portfolio 71.45%
Fulcrum Separate Account
of First Allmerica Financial Life Insurance Company (a New York insurance
company), 440 Lincoln Street, Worcester, MA 01653
22
<PAGE>
Global Interactive/Telecomm Portfolio 20.39%
International Growth Portfolio 11.65%
Growth Portfolio 16.97%
Value Portfolio 18.98%
Strategic Income Portfolio 28.55%
GAMCO Investors, Inc. (a New York Corporation), One Corporate Center, Rye, NY
10580
Global Interactive/Telecomm Portfolio 3.69%
Value Portfolio 1.90%
Allmerica Financial Life Insurance and Annuity Company and First Allmerica
Financial Life Insurance Company are both wholly owned subsidiaries of Allmerica
Financial Corporation. GAMCO Investors, Inc. is a wholly owned subsidiary of
Gabelli Funds, Inc.
The officers and directors of the Trust as a group owned less than 1% of the
outstanding shares of each Portfolio as of February 1, 2000.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Trust is responsible for the payment of certain fees and expenses including,
among others, the following: (1) fees of the Manager and the Portfolio Managers;
(2) custodial, accounting, auditing, legal and transfer agency fees; (3) fees of
independent trustees; (4) brokerage fees and commissions in connection with the
purchase and sale of Portfolio securities; (5) taxes; (6) the reimbursement of
organizational expenses; and (7) expenses of printing and mailing prospectuses,
proxy statements and shareholder communications.
Allmerica Financial Investment Management Services, Inc. ("AFIMS" or the
"Manager") serves as overall Manager of the Trust. As Manager, AFIMS is
responsible for general administration of the Trust as well as monitoring and
evaluating the performance of the Portfolio Managers. AFIMS, a Massachusetts
corporation, is registered with the Securities and Exchange Commission as an
investment adviser. AFIMS is located at 440 Lincoln Street, Worcester,
Massachusetts 01653. AFIMS is an indirect, wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"). AFC is the parent company of the two life
insurance companies currently utilizing the Trust as an underlying fund for
their variable contracts, Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") and First Allmerica Financial Life Insurance Company.
Prior to February 12, 1998, Palladian Advisors, Inc. ("PAI") served as Manager
of the Trust, and Tremont Partners, Inc. ("Tremont") served as Portfolio Advisor
to the Trust. AFIMS now serves as Manager of the Trust, and there is no
Portfolio Advisor. Tremont was previously paid by PAI (not the Trust). Thus,
overall advisory fees were not changed as a result of the switch from PAI and
Tremont to AFIMS.
The Portfolio Managers have been selected by the Manager and Trustees. The
following is information relating to control and affiliations of the Manager and
Portfolio Managers of the Trust.
AFIMS, First Allmerica and Allmerica Financial Life are direct or indirect
wholly-owned subsidiaries of Allmerica Financial Corporation ("AFC"), a
publicly-traded Delaware holding company for a group of affiliated companies,
the largest of which is First Allmerica. First Allmerica and Allmerica Financial
Life have established Separate Accounts for the purpose of funding variable
annuity contracts and variable life insurance policies. The shares of each of
the Funds of the Trust may be purchased only through these Separate Accounts.
GAMCO Investors, Inc. ("GAMCO"), Portfolio Manager to both the Global
Interactive/Telecomm Portfolio and the Value Portfolio. GAMCO is a wholly-owned
subsidiary of Gabelli Asset Management Inc. GAMCO provides investment advice to
individuals, investment companies, pension, and profit sharing plans and trust,
estates or charitable organizations. Gabelli Asset Management Inc. is a New York
23
<PAGE>
Stock Exchange listed company which, through its affiliates, provides investment
management and brokerage services to mutual funds, institutional and high net
worth investors, primarily in the United States.
Bee & Associates Incorporated ("Bee") serves as Portfolio Manager of the
International Growth Portfolio. It was formed in 1989 to provide global equity
management expertise to individuals, retirement plan sponsors, foundations,
endowments and other entities. The firm's company ownership has been held by the
managing principals. Bee is expected to be acquired by Denver Investment
Advisors LLC on or about April 30, 2000. Bee will operate as Bee & Associates, a
division of Denver Investment Advisors. Since 1958, Denver Investment Advisors
has provided investment management services to institutional and private
investors worldwide. Assets under management at Denver Investment Advisors were
approximately $9 billion, as of the date of this SAI.
Analytic Investors, Inc. ("Analytic Investors") Portfolio Manager of the Growth
Portfolio is a wholly-owned subsidiary of United Asset Management Corporation, a
publicly traded company. It was formed in 1970 to provide management of
investment advisory accounts to individuals, banks/thrift institutions,
investment companies, pension and profit sharing plans, trusts, estates or
charitable organizations and other corporations. One of the largest independent
investment management organizations in the world, United Asset Management
Corporation provides a broad range of institutional quality investment
management services to institutions and high-net-worth and retail investors.
These services are offered through a diverse group of operating firms that
managed over $201 billion on December 31, 1999 for clients located throughout
the United States, Canada and abroad.
Allmerica Asset Management, Inc. ("AAM") serves as the Portfolio Manager of the
Strategic Income Portfolio. AAM is a direct, wholly-owned subsidiary of
Allmerica Financial Corporation ("AFC"). AAM serves as an investment adviser to
First Allmerica's General Account and to a number of affiliated insurance
companies and other affiliated accounts. AFC is a publicly-traded Delaware
holding company for a group of affiliated companies.
The following is a list of persons who are affiliated persons of the Manager
and/or any Portfolio Manager and the capacities in which the person is
affiliated:
<TABLE>
<CAPTION>
POSITION(S) HELD WITH POSITION(S) HELD WITH THE MANAGER OR
NAME THE TRUST PORTFOLIO MANAGER OF THE TRUST
---- --------- ------------------------------
<S> <C> <C>
George M. Boyd Secretary Counsel, AFIMS
- -------------- --------- --------------
Ann K. Tripp Vice President Vice President, AAM
- ------------ -------------- -------------------
Joseph W. MacDougall, Jr. Assistant Secretary Assistant Secretary, AFIMS;
Assistant Secretary and Counsel, AAM
Paul T. Kane Vice President Vice President, AFIMS
- ------------ -------------- ---------------------
</TABLE>
ADVISORY FEES
For 1997, the Global Interactive/Telecomm Portfolio accrued fees to Palladian
Advisors, Inc. ("PAI") of $810, of which the Portfolio paid PAI $24. PAI paid
Tremont Partners, Inc. ("Tremont") $24.
For 1997, the International Growth Portfolio accrued fees to PAI of
$1,848, of which the Portfolio paid PAI $524. PAI paid Tremont $524.
For 1997, the Growth Portfolio accrued fees to PAI of $838, of which the
Portfolio paid PAI $271. PAI paid Tremont $271.
24
<PAGE>
For 1997, the Value Portfolio accrued fees to PAI of $947, of which the
Portfolio paid PAI $53. PAI paid Tremont $53.
For 1997, the Strategic Income Portfolio accrued fees to PAI of $1,508, of which
the Portfolio paid PAI $432. PAI paid Tremont $432.
For 1997 the Portfolios paid the following fees to the Portfolio Managers: Value
($3,787); Growth ($3,354); International Growth ($7,394); Strategic Income
($6,030); Global Interactive/Telecomm ($3,240).
The Portfolio Managers of the Trust earned the following fees:
Portfolio Manager Fees Earned in 1998
- ---------------- -------------------
GAMCO Investors, Inc. $80,210.56
Bee & Associates Incorporated $ 1,164.37
Allmerica Asset Management $ 3,604.37
Fischer Francis Trees & Watts $ 2,177.61
For 1999, the Portfolio Managers of the Trust earned the following fees:
Portfolio Manager Fees Earned in 1999
- ---------------- -------------------
GAMCO Investors, Inc. $ 140,989
Bee & Associates Incorporated $ 28,046
Allmerica Asset Management, Inc. (net of waiver of $2,788) $ 3,998
Analytic Investors, Inc. $ 14,130
Set forth below is a chart with advisory fee information for PAI and AFIMS.
Excluding Global Interactive/Telecomm Portfolio, no fees were paid to PAI or
AFIMS because of expense limitation arrangements.
<TABLE>
<CAPTION>
1998 1998 1998
PAI AFIMS Total
Expense Expense Expense 1998 Paid
------- ------- ---------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio $1,139.31 $13,973.35 $15,112.66 $0.00
International Growth Portfolio 0.00 291.09 291.09 0.00
Growth Portfolio 0.00 0.00 0.00 0.00
Value Portfolio 940.72 3,820.37 4,761.09 0.00
Strategic Income Portfolio 100.22 1,314.83 1,415.05 0.00
------ -------- -------- ----
$2,180.25 $19,399.64 $21,579.89 $0.00
</TABLE>
1999
AFIMS
Expense 1999 Paid
------- ---------
Global Interactive/Telecomm Portfolio $35,247 $13,894
International Growth Portfolio 7,011 0.00
Growth Portfolio 3,533 0.00
Value Portfolio 0 0.00
Strategic Income Portfolio 999 0.00
------- ----
$46,790 $13,894
* Payment to AFIMS reduced because of expense limitation arrangement.
<PAGE>
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers, LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Trust and provides audit and
accounting services including (i) examination of the annual financial
statements, (ii) assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission, and (iii) review of annual
income tax returns.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
Massachusetts 02116 serves as the Trust's custodian. As such, it is responsible
for holding the Trust's assets.
IBT also provides fund accounting, administrative and transfer agency services.
The fee for each Portfolio is based on an annual rate of 0.05% of net assets for
the first $600 million in net assets and an annual rate of 0.03% of net assets
for net assets in excess of $600 million. In addition, each Portfolio will
reimburse IBT for out-of-pocket expenses such as pricing services. There is
currently a minimum annual fee of $48,500 per Portfolio. For custodian, fund
accounting and transfer agency services during 1997, each Portfolio paid $49,459
to IBT. For custodian, fund accounting and transfer agency services during 1998,
each Portfolio paid $48,500 to IBT. For custodian, fund accounting and transfer
agency services during 1999, the Portfolios paid the following:
Portfolio Paid to
--------- IBT
---
Global Interactive/Telecomm Portfolio $ 49,732
International Growth Portfolio 54,977
Growth Portfolio 63,762
Value Portfolio 53,559
Strategic Income Portfolio 49,531
--------
Total $271,561
IBT also assists the manager by providing certain administrative services, such
as compliance reviews. IBT serves in this role pursuant to an agreement with the
Manager, not the Trust. The Manager paid IBT $275,000 in 1997, $195,555 in 1998
and $196,250 in 1999 for these services.
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BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE SELECTION
Each Portfolio Manager is responsible for the selection of brokers and dealers
to effect that Portfolio's transactions and the negotiation of brokerage
commissions, if any. Transactions on a stock exchange in equity securities will
be executed primarily through brokers who will receive a commission paid by the
Portfolio. In the United States, commissions are usually negotiated; in other
countries, the commissions are usually fixed. Equity securities traded in the
over-the-counter ("OTC") markets are generally traded on a "net" basis with a
dealer acting as principal for its own account without a stated commission,
although the price of the security usually includes a profit to the dealer in
the form of the spread between the bid and asked prices. In some instances, the
Portfolio Managers may execute OTC transactions on an agency basis through a
broker who is not a market marker in the particular security, and in those
transactions the Portfolio will also pay a brokerage commission. Fixed income
securities are generally traded on a "net" basis. In underwritten offerings,
securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain of these securities may be
purchased directly from an issuer, in which case neither commissions nor
discounts are paid.
In purchasing and selling securities, it is the policy of each Portfolio Manager
to seek the best execution for the Portfolio taking into account such factors as
price (including the applicable brokerage commission or dollar spread), size of
order, the nature of the market for the security, the timing of the transaction,
the reputation, experience and financial stability of the broker-dealer
involved, the quality of the service, the difficulty of the execution, the
operational facilities of the firms involved, and the firm's risk in positioning
a block of securities.
Notwithstanding the above, under certain conditions, the Portfolios are
authorized to pay higher brokerage commissions in return for brokerage and
research services. A Portfolio Manager may cause a Portfolio to pay a
broker-dealer who furnishes brokerage and/or research services a commission or
price for executing a transaction that is in excess of the commission or price
another broker would have received for executing the transaction if it is
determined that such commission or price is reasonable in relation to the value
of the brokerage and/or research services which have been provided. In some
cases, research services are generated by third parties, but are provided to the
Portfolio Manager or through broker-dealers.
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The Portfolio Managers may receive a wide range of research services from
broker-dealers, including information on securities markets, the economy,
individual companies, statistical information, accounting and tax law
interpretations, technical market action, pricing and appraisal services, and
credit analyses. Research services may be in the form of written reports,
telephone contacts, personal meetings with security analysts, corporate and
industry spokespersons, economists, academicians, and government
representatives, and access to various computer-generated data. Research
services received from broker-dealers are supplemental to each Portfolio
Manager's own research efforts and, when utilized, are subject to internal
analysis before being incorporated into the investment process.
In allocating brokerage, a Portfolio Manager may periodically assess the
contribution of the brokerage and research services provided by broker-dealers,
and allocate a portion of the brokerage business of its clients on the basis of
these assessments. In addition, broker-dealers sometimes suggest a level of
business they would like to receive in return for the various brokerage and
research services they provide. Actual brokerage received by any firm may be
less than the suggested allocations, but can (and often does) exceed the
suggestions because total brokerage is allocated on the basis of all the
considerations described above. Net prices and commissions are periodically
reviewed to determine whether they are reasonable in relation to the services
provided. In some instances, the Portfolio Managers receive research services
they might otherwise have had to perform for themselves. The research services
provided by broker-dealers can be useful to the Portfolio Managers in serving
other clients, as well as the Portfolios.
Paying commission amounts greater than otherwise available to obtain research
services poses potential conflicts of interest for the Portfolio Manager. The
Portfolio Manager may have an incentive to pay increased commissions to obtain
research services instead of paying for those services from its own operating
revenues. In addition, the Portfolio Manager may have an incentive to select a
broker-dealer based on the research services it provides rather than the quality
of trade execution. The Manager and the Trust Board will monitor the Portfolio
Managers' use of soft dollar arrangements.
Investment decisions for each Portfolio are made by the Portfolio Manager of
each Portfolio. Each Portfolio Manager has investment advisory clients other
than the Portfolio. A particular security may be bought or sold by a Portfolio
Manager for certain clients even though it could have been bought or sold for
other clients at the same time. It also sometimes happens that two or more
clients simultaneously purchase or sell the same security, in which event each
day's transactions in such security are, insofar as possible, allocated between
such clients in a manner deemed fair and reasonable by the Portfolio Manager.
Although there is no specified formula for allocating such transactions, the
various allocation methods used by the Portfolio Manager, and the results of
such allocations, are subject to periodic review by the Trust's Manager and
Board of Trustees. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients.
COMMISSIONS
A Portfolio Manager may employ an affiliated broker to execute brokerage
transactions on behalf of the Portfolio as long as the commissions are
reasonable and fair compared to the commissions received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
GAMCO, the Portfolio Manager for the Value and Global Interactive Telecomm
Portfolios, uses an affiliated broker, Gabelli & Company, Inc. ("Gabelli"), to
execute most brokerage transactions on behalf of those two Portfolios. The
Portfolios may not engage in any transactions in which a Portfolio Manager or
its affiliates acts as principal, including over-the-counter purchases and
negotiated trades in which such party acts as a principal. GAMCO is not
authorized to pay higher brokerage commissions to Gabelli in return for research
services.
During 1997, the Global Interactive/Telecomm Portfolio paid total commissions of
$5,693. During 1998, the Global Interactive/Telecomm Portfolio paid total
commissions of $8,762. All 1996 and 1997 commissions were paid to Gabelli. In
1999, Global Interactive/Telecomm Portfolio paid total commissions of $12,696,
$8,368 of which was paid to Gabelli. The percentage of the Portfolio's aggregate
brokerage commissions paid to Gabelli during 1998 was 65.91%. The percentage of
the Portfolio's aggregate dollar amount of transactions involving the payment of
commissions effected through Gabelli during 1999 was 66.99%.
During 1997, the International Growth Portfolio paid total commissions of
$10,780. During 1998, the International Growth Portfolio paid total commissions
of $5,984.79. In 1999, the International Growth Portfolio paid total commissions
of $8,822. No commissions were paid to brokers affiliated with the Trust or the
Portfolio Manager.
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During 1997, the Growth Portfolio paid total commissions of $36,181. During
1998, the Growth Portfolio paid total commissions of $18,322. In 1999, the
Growth Portfolio paid total commissions of $18,322. No commissions were paid to
brokers affiliated with the Trust or the Portfolio Manager. The total
commissions paid between 1996 and 1997 and 1998 differed due to several factors,
including growth in Portfolio assets, a change in the Portfolio Manager in 1998
and a strategy pursued by the new Portfolio Management that involved a high
portfolio turnover rate.
During 1997, the Value Portfolio paid total commissions of $19,112. $17,367 of
1997 commissions were paid to Gabelli. In 1998, the Value Portfolio paid total
commissions of $21,387, $19,006 of which was paid to Gabelli. In 1999, the Value
Portfolio paid total commissions of $15,630, $14,136 of 1999 commissions were
paid to Gabelli. The percentage of the Portfolio's aggregate brokerage
commissions paid to Gabelli during 1999 was 90.44%. The percentage of the
Portfolio's aggregate dollar amount of transactions involving the payment of
commissions effected through the broker during 1999 was 91.35%.
The Strategic Income Portfolio did not pay any commissions in 1997, 1998 and
1999.
CAPITAL STOCK AND OTHER SECURITIES
CAPITAL STOCK
The Trust is a Massachusetts business trust established under an Agreement and
Declaration of Trust dated September 8, 1993. Effective September 1, 1998, the
Trust changed its name to The Fulcrum Trust. The Trust is currently offering to
Separate Accounts shares of five different "series" or Portfolios. Each
Portfolio is, for investment purposes, a separate investment fund, and each
issues a separate class of capital stock with a par value of $0.001 per share.
One series, the Strategic Income Portfolio is expected to be dissolved on or
about July 1, 2000. Each share of stock issued with respect to a Portfolio has a
pro-rata interest in the assets of that Portfolio and has no interest in the
assets of any other Portfolio. Each Portfolio bears its own liabilities and also
its proportionate share of the general liabilities of the Trust. This SAI
discusses the initial five Portfolios, which issue the following five shares:
Value Portfolio shares, Growth Portfolio shares, International Growth Portfolio
shares, Strategic Income Portfolio shares, and Global Interactive/Telecomm
Portfolio shares.
The Agreement and Declaration of Trust established three other Portfolios, and
the Board of Trustees may establish additional Portfolios (with different
investment objectives and policies) at any time in the future. The Trust has
sold 1,000 shares of one of those Portfolios (the Balanced Opportunity
Portfolio) to provide part of the Trust's initial capitalization, but the Trust
is not now offering shares of that Portfolio to Separate Accounts or qualified
plans. Establishment and offering of additional Portfolios will not alter the
rights of the Trust's shareholders. When issued in accordance with the terms of
the Agreement and Declaration of Trust, shares are fully paid, redeemable,
freely transferable, and non-assessable by the Trust. Shares do not have
preemptive rights or subscription rights. In liquidation of a Portfolio of the
Trust, each shareholder is entitled to receive his or her pro rata share of the
net assets of that Portfolio.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
and should be considered remote.
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VOTING RIGHTS
Shareholders of the Trust are given certain voting rights. Each share of the
Portfolios will be given one vote, unless otherwise required by law.
Massachusetts business trust law does not require the Trust to hold annual
shareholder meetings, although special meetings may be called for the Portfolio,
or for the Trust as a whole, for purposes such as electing or removing Trustees,
changing fundamental policies, or approving a contract for investment advisory
services. In accordance with current laws, it is anticipated that an insurance
company issuing a Variable Contract that participates in the Trust will request
voting instructions from Variable Contract owners and will vote shares or other
voting interests in the Separate Account in proportion to the voting
instructions received.
Some Portfolio Managers invested or agreed to invest in the Portfolios they
manage. Each of those Portfolio Managers has agreed to vote its shares in the
same proportion as all contract owners having voting rights with respect to the
Portfolio or in such other manner as may be required by the SEC or its staff.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The prospectus provides information about the purchase, redemption and pricing
of Trust shares.
TAXATION OF THE PORTFOLIOS
The Trust intends to qualify under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). In any year in which the Portfolios qualify as
regulated investment companies and distribute substantially all of their net
investment income and their net capital gains, the Portfolios generally will not
be subject to federal income tax to the extent they distribute to shareholders
such income and capital gains in the manner required under the Code. If the
Trust does not qualify under Subchapter M of the Code, the Portfolios will be
subject to Federal income tax.
The requirements applicable to a Portfolio's qualification as a regulated
investment company may limit the extent to which a Portfolio will be able to
engage in transactions in options, futures contracts or forward contracts.
Income received by a Portfolio from sources within a foreign country may be
subject to withholding and other taxes imposed by that country. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
To comply with regulations under Section 817(h) of the Code which contains
certain diversification requirements, each Portfolio of the Trust will be
required to diversify its investments so that on the last day of each quarter of
a calendar year, no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. Generally, securities of a single issuer
are treated as one investment and obligations of each U.S. Government agency and
instrumentality (such as the Government National Mortgage Association) are
treated for purposes of Section 817(h) as issued by separate issuers. In
addition, any security issued, guaranteed or insured (to the extent so
guaranteed or insured) by the United States or an instrumentality of the U.S.
will be treated as a security issued by the U.S. Government or its
instrumentality, whichever is applicable.
In connection with the issuance of the diversification regulations, the Treasury
Department announced that it would issue future regulations or rulings
addressing the circumstances in which a variable contract owner's control of the
investments of a separate account may cause the contract owner, rather than the
insurance company, to be treated as the owner of the assets held by the separate
account. If the variable contract owner is considered the owner of the
securities underlying the separate account, income and gains produced by those
securities would be included currently in the contract owner's gross income.
Among the areas in which Treasury has indicated informally that it is concerned
that there may be too much contract owner control is where a mutual fund (or
Portfolio) underlying a separate account invests solely in securities issued by
companies in a specific industry.
These future rules and regulations proscribing investment control may adversely
affect the ability of certain Portfolios of the Trust to operate as described in
this Prospectus. There is, however, no certainty as to what standards,
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if any, Treasury will ultimately adopt. In the event that unfavorable rules or
regulations are adopted, there can be no assurance that the Portfolios will be
able to operate as currently described in the Prospectus, or that a Portfolio
will not have to change its investment objective or objectives, investment
policies, or investment restrictions. While a Portfolio's investment objective
is fundamental and may be changed only by a vote of a majority of its
outstanding shares, the Trustees have reserved the right to modify the
investment policies of a Portfolio as necessary to prevent any such prospective
rules and regulations from causing the Variable Contract Owners to be considered
the owners of the assets underlying the Variable Accounts.
UNDERWRITER
The Trust does not presently utilize an underwriter.
CALCULATION OF PERFORMANCE DATA
The Trust may, from time to time, include quotations of each Portfolio's total
return in advertisements or reports to shareholders or prospective investors.
Performance information for the Portfolios will not be advertised or included in
sales literature for Variable Contracts unless accompanied by comparable
performance information for a separate account to which the Portfolios offer
their shares. Quotations of total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Portfolios over periods of 1, 5 and 10 years (up to the life of the Portfolios)
calculated pursuant to the following formula:
(n) P(1+T) = ERV (where P = a hypothetical initial payment of $1,000, T = the
average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). Quotations of total return may also be shown for other periods. All
total return figures reflect the deduction of a proportional share of Portfolio
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid. AVERAGE ANNUAL RETURNS are calculated by determining the
change in value of a hypothetical investment in the Portfolio over a stated
period, and calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value has been
constant over the period. Average annual returns covering periods of less than
one year are calculated by determining the Portfolio's total return for the
period, extrapolating that return for a full year, and stating the result as an
annual return. Because this method assumes that performance will remain constant
for the entire year when in fact it is unlikely that performance will remain
constant, average annual returns for a partial year must be viewed as strictly
theoretical information.
INVESTORS ALSO SHOULD BE AWARE THAT A PORTFOLIO'S PERFORMANCE IS NOT CONSTANT
OVER TIME, BUT VARIES FROM YEAR TO YEAR. AVERAGE ANNUAL RETURN REPRESENTS
AVERAGED FIGURES AS OPPOSED TO THE ACTUAL PERFORMANCE OF THE PORTFOLIO.
A Portfolio also may quote cumulative total returns which reflect the simple
change in value of an investment over a stated period. Average annual total
returns and cumulative total returns may be quoted as a percentage or as a
dollar amount. They may be calculated for a single investment, for a series of
investments or for a series of redemptions over any time period. Total returns
may be broken down into their components of income and capital in order to show
their respective contributions to total return. Performance information may be
quoted numerically or in a table, graph or similar illustration.
All total return figures will reflect the deduction of a proportional share of
each Portfolio's expenses on an annual basis, and will assume that all dividends
and distributions are reinvested when paid. Quotations of total return reflect
only the performance of a hypothetical investment in the Portfolios during the
particular time period on which the calculations are based. Total return for the
Portfolios will vary based on changes in market conditions and the level of each
Portfolio's expenses, and no reported performance figure should be considered an
indication of performance which may be expected in the future.
Quotations of total return for the Portfolios will not take into account charges
or deductions against any Separate Account to which the Portfolio shares are
sold or charges and deductions against the pertinent Variable Contract, although
comparable performance information for the Separate Account will take such
charges into account. A person considering the purchase of a Variable Contract
should not compare a Portfolio's total return with the total returns of mutual
funds that
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sell their shares directly to the public since the Portfolio's figures do not
reflect charges against the separate accounts or the Variable Contracts.
Reports and promotional literature may also contain other information, including
the effect of tax deferred compounding on each Portfolio's investment returns,
or returns in general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points in time, of the return
from an investment in the Portfolio (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with the return on a taxable basis.
YIELD QUOTATION
The 30-day (or one month) standard yields of the Portfolios are calculated as
follows:
(6)
YIELD = 2[(a - b + 1) - 1)]
------------- -----
cd
Where: a = dividends and interest earned by a Portfolio during the
period; b = expenses accrued for the period (not of
reimbursements); c = average daily number of shares outstanding
during the period entitled to receive dividends; and d = maximum
offering price per share on the last day of the period.
For the purpose of determining net investment income earned during
the period (variable "a" in the formula), dividend income on equity
securities held by a Portfolio is recognized by accruing 1/360 of
the stated dividend rate of the security each day that the security
is in the Portfolio. Except as noted below, interest earned on debt
obligations held by a Portfolio is calculated by computing the
yield to maturity of each obligation based on the market value of
the obligation (including actual accrued interest) at the close of
business on the last business day of each month, or, with respect
to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and
multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent
month that the obligation is held by the Portfolio. For purposes of
this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next
call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula
generally calls for amortization of the discount or premium. The
amortization schedule will be adjusted monthly to reflect changes
in the market value of such debt obligations. Expenses accrued for
the period (variable "b" in the formula) include all recurring fees
charged by a Portfolio to all shareholder accounts in proportion to
the length of the base period and the Portfolio's mean (or median)
account size. Undeclared earned income will be subtracted from the
offering price per share (variable "d" in the formula).
Performance information for a Portfolio may be compared, in
advertisements, sales literature, and reports to shareholders to:
(i) the Standard & Poor's 500 Stock Index ("S & P 500"), the Dow
Jones Industrial Average ("DJIA"), the Lehman Brothers Government
Bond Index, the Donoghue Money Market Institutional Averages, the
Lehman Brothers Government Corporate Index, the Salomon High Yield
Index, or other indices that measure performance of a pertinent
group of securities, (ii) other groups of mutual funds tracked by
Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds by overall performance, investment
objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an
investment in the Portfolio. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for any Portfolio reflects only the
performance of a hypothetical investment in the Portfolio during
the particular time period on which the calculations are based.
Performance information should be considered in light of the
Portfolio's investment objective or objectives and investment
policies and the market conditions during the given time period.
Performance information should not be considered as a
representation of what may be achieved in the future.
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PERFORMANCE INFORMATION FOR PERIOD ENDED DECEMBER 31, 1999
Set forth below are average annual total return information for the Global
Interactive/Telecomm Portfolio, International Growth Portfolio, Growth
Portfolio, Value Portfolio, and Strategic Income Portfolio and for the 1 year
and/or since inception periods ended December 31, 1999 and yield for the
Strategic Income Portfolio for the 30-day period ended December 31, 1999.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1 YEAR PERIOD* SINCE INCEPTION**
<S> <C> <C>
Global Interactive/Telecomm Portfolio 56.89% 31.03%
International Growth Portfolio 37.26% 6.28%
Growth Portfolio 20.07% 9.80%
Value Portfolio 8.17% 15.73%
Strategic Income Portfolio (3.12%) 1.07%
</TABLE>
* The total return for the one-year period ended December 31, 1999 reflects the
impact of an expense reimbursement totaling $253,215, among each Portfolio.
Absent reimbursements, the returns would have been lower.
** The total return since inception includes the impact of expense
reimbursements totaling $1,511,688 and a capital infusion totaling $269,919,
to each Portfolio. Absent reimbursements, the returns would have been lower.
The Global Interactive/Telecomm Portfolio, Growth Portfolio Value Portfolio and
Strategic Income Portfolio began business operations on February 1, 1996. The
International Growth Portfolio began operations on March 26, 1996.
YIELD FOR 30 DAY PERIOD
-----------------------
ENDED DECEMBER 31, 1999
-----------------------
(UNAUDITED)
Strategic Income Portfolio 5.6623%
Quotations of total return for a Portfolio will not take into account charges
and deductions against any Variable Accounts to which the Portfolio's shares are
sold. Performance for the Variable Accounts will therefore be lower than
performance of the Portfolios. Performance information of the Portfolios will be
accompanied by performance information for the applicable Variable Account.
FINANCIAL STATEMENTS
The Trust's Financial Statements and related notes and the report of the
independent accountants contained in the Trust's annual report for the fiscal
year ended December 31, 1999 are incorporated by reference into this Statement
of Additional Information.
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APPENDIX A
DESCRIPTION OF RATINGS
CERTAIN RATINGS OF CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE INC.
Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged."
Aa-Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
A-Bonds rated A possess many favorable investment attributes and are generally
considered as upper-medium-grade obligations.
Baa-Bonds rated Baa are considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba-Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterize bonds in
this class.
B-Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa-Bonds rated Caa are of poor standing. Such issues may be in default or
elements of danger with respect to principal or interest may be present.
Ca-Bonds rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked short comings.
STANDARD & POOR'S CORPORATION
AAA-Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal, and differ from the highest rated issues in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB-Bonds rated BBB are regarded as having adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for bonds in this
category than for bonds in the higher rated categories.
BB, B, CCC, CC-Bonds rated BB, B, CCC, and CC are regarded on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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RATINGS OF COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers
rated Prime-1 (or supporting institutions) are considered to have a superior
capacity for repayment of short-term promissory obligations. Issuers rated
Prime-2 (or supporting institutions) are considered to have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate
may be more affected by external conditions. Ample alternative liquidity is
maintained.
STANDARD & POOR'S CORPORATION
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Capacity for timely
payment on commercial paper on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.
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PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. EXHIBITS
<S> <C>
Exhibit 1 Agreement and Declaration of Trust. (1)
Exhibit 2 By-Laws. (1)
Exhibit 3 See exhibits (1.) and (2.) above.
Exhibit 4(a) Management Agreement (the "Management Agreement") between
Registrant and Allmerica Investment Management Company, Inc.
("AIMCO"), predecessor to Allmerica Financial Investment
Management Services, Inc. ("AFIMS") (the "Manager") dated
February 12, 1998. (2)
Exhibit 4(b) Portfolio Manager Agreement among Registrant, Palladian
Advisors, Inc. and GAMCO Investors, Inc. with respect to the
Global Interactive/Telecomm Portfolio dated October 12,
1995. (3)
Exhibit 4(c) Portfolio Manager Agreement among Registrant, the Manager
and Bee & Associates, Incorporated with respect to the
International Growth Portfolio dated November
23, 1999. (5)
Exhibit 4(d) Portfolio Manager Agreement among the Registrant, AFIMS and
Pilgrim Baxter Analytic Investors, Inc. with respect to the
Growth Portfolio dated August 1, 1998. (3)
Exhibit 4(e) Portfolio Manager Agreement among Registrant, Palladian
Advisors, Inc. and GAMCO Investors, Inc. with respect to the
Value Portfolio dated October 12, 1995. (3)
Exhibit 4(f) Portfolio Manager Agreement among the Registrant, AIMCO and
Allmerica Asset Management, Inc. with respect to the
Strategic Income Portfolio dated April 11, 1998. (2)
Exhibit 4(g) Substitution Agreement among the Registrant, Palladian
Advisors, Inc., AIMCO and GAMCO Investors, Inc. with respect
to the Global Interactive/Telecomm Portfolio dated February
11, 1998. (2)
Exhibit 4(i) Substitution Agreement among the Registrant, Palladian
Advisors, Inc., AIMCO and GAMCO Investors, Inc. with respect
to the Value Portfolio dated February 11, 1998. (2)
Exhibit 5 Not applicable.
Exhibit 6 Not applicable.
Exhibit 7 Custodian Agreement between the Registrant and Investors
Bank & Trust Company dated April 1, 1999. (5)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Exhibit 8(a) Transfer Agency and Service Agreement
between Registrant and Investors Bank & Trust
Company dated April 1, 1999 (5)
Exhibit 8(b) Administration Services Agreement between AFIMS, the
Registrant and Investors Bank & Trust Company dated April
1, 1999 (5)
Exhibit 8(c) Portfolio Manager Investment Agreement among Registrant,
Palladian Advisors, Inc., Western Capital Financial Group,
Inc., and GAMCO Investors, Inc. with respect to the Global
Interactive/Telecomm Portfolio dated October 12, 1995. (4)
Exhibit 8(d) Portfolio Manager Investment Agreement among Registrant,
Palladian Advisors, Inc., Western Capital Financial Group,
Inc., Bee & Associates, Incorporated and Bruce B. Bee and
Edward N. McMillan with respect to the International Growth
Portfolio dated October 12, 1995. (4)
Exhibit 8(e) Portfolio Manager Investment Agreement among Registrant,
Palladian Advisors, Inc., Western Capital Financial Group,
Inc., and GAMCO Investors, Inc. with respect to the Value
Portfolio dated October 12, 1995. (4)
Exhibit 8(f) Participation Agreement among the Registrant, AIMCO, and
Allmerica Financial Life Insurance and Annuity Company dated
April 9, 1998. (2)
Exhibit 8(g) Participation Agreement among the Registrant, AIMCO, and
First Allmerica Financial Life Insurance Company dated April
9, 1998. (2)
Exhibit 9 Opinion of counsel. (1)
Exhibit 10 Consent of independent accountants. (5)
Exhibit 11 Not applicable.
Exhibit 12 Not applicable.
Exhibit 13 Not applicable.
Exhibit 14 Not applicable.
Exhibit 15 Not applicable.
Exhibit 16 Code(s) of Ethics of the Trust and Portfolio Managers
(a) The Fulcrum Trust
(b) Analytic Investors, Inc.
(c) Bee & Associates, Incorporated
(d) Gabelli Asset Management, Inc. (5)
Exhibit 17 Power of Attorney dated April 24, 2000 (5)
</TABLE>
(1) Incorporated by reference to post-effective amendment No. 1 Reg. No.
33-73882, filed January 26, 1996.
(2) Incorporated by reference to post-effective amendment No. 7, Reg. No.
33-73882, filed July 2, 1998.
(3) Incorporated by reference to post-effective amendment No. 9, Reg. No.
33-73882, filed February 25, 1999.
<PAGE>
(4) Incorporated by reference to post-effective amendment No. 8, Reg. No.
33-73882, filed August 31, 1998.
(5) Filed herewith.
Item 24. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
Item 25. INDEMNIFICATION
Section 5.4 of the Agreement and Declaration of Trust of The Fulcrum Trust,
Exhibit 1 hereto, provides in part: "The Trust shall indemnify (from the assets
of the Portfolio or Portfolio in question) each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) [hereinafter referred to as a "Covered
Person"] against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, except with respect
to any matter as to which it has been determined that such Covered Person (i)
did not act in good faith in the reasonable belief that such Covered Person's
action was in or not opposed to the best interests of the Trust or (ii) had
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(either and both of the conduct described in (i) and (ii) being referred to
hereafter as "Disabling Conduct")."
The Agreement and Declaration provides additional terms of this indemnification.
The agreement between the registrant and the Manager includes the following
indemnification provision:
"The Manager shall not be liable for any loss suffered by the Trust as the
result of actions by persons other than the Manager or for any loss suffered by
the Trust as the result of any negligent act or error of judgment of the Manager
in connection with the matters to which this Agreement relates, except a loss
resulting from a breach by the Manager of its fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties under this Agreement or
from reckless disregard by it of its obligations and duties under this
Agreement. The Trust shall indemnify the Manager and hold it harmless from all
cost, damage and expense, including reasonable expenses for legal counsel,
incurred by the Manager resulting from actions for which it is relieved of
responsibility by this paragraph. The Manager shall indemnify the Trust and hold
it harmless from all cost, damage and expense, including reasonable expenses for
legal counsel, incurred by the Trust resulting from (i) a breach by the Manager
of its fiduciary duty with respect to compensation for services paid by the
Trust (in which case any award of damages shall be limited to the period and the
amount set forth in Section 36(b)(3) of the 1940 Act); (ii) willful misfeasance,
bad faith or gross negligence by the Manager in the performance of its duties
under this Agreement; or (iii) reckless disregard by the Manager of its
obligations and duties under this Agreement."
<PAGE>
The agreements with the Portfolio Managers include substantially similar
provisions.
The Participation Agreements with the life insurance companies investing in the
Trust (each a "Life Company") include certain indemnification provisions.
Subject to certain limitations, the Life Company agrees, among other things, to
indemnify the Trust and the Manager (and their officers, directors and certain
other persons) for any and all losses, claims, damages, or liabilities
(including legal and other expenses) arising out of certain misrepresentations
or omissions, a failure by Life Company to substantially provide the services
required by the Participation Agreement, or a material breach of the
Participation Agreement. Subject to certain limitations, the Manager agrees,
among other things, to indemnify the Life Company (and its officers and
directors and certain other persons) against all losses, claims, damages, or
liabilities (including legal and other expenses) arising out of certain
misrepresentations or omissions, a failure by the Trust to meet certain
requirements, or a material breach by the Manager of the Participation
Agreement. Subject to certain limitations, the Trust agrees, among other things,
to indemnify the Life Company (and its officers and directors and certain other
persons) against all losses, claims, damages, or liabilities (including legal
and other expenses) arising out of a failure by the Trust to meet certain
requirements or a material breach by the Trust of the Participation Agreement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER AND PORTFOLIO
MANAGERS
(a) ALLMERICA FINANCIAL INVESTMENT MANAGEMENT SERVICES, INC.
See "Management of the Portfolios" in the Prospectus and "Investment Management
and Other Services" in the Statement of Additional Information, (Parts A and B)
of this Registration Statement.
Information as to Allmerica Financial Investment Management Services, Inc.'s
directors and executive officers is included in its Form ADV filed with the
Securities and Exchange Commission (File Number 801-55463), the text of which is
incorporated by reference.
(b) GAMCO INVESTORS, INC.
See "Management of the Portfolios" in the Prospectus and "Investment Management
and Other Services" in the Statement of Additional Information, (Parts A and B)
of this Registration Statement relating to the Global Interactive/Telecomm and
the Value Portfolios.
Information as to GAMCO Investors, Inc.'s directors and executive officers is
included in its Form ADV
<PAGE>
filed with the Securities and Exchange Commission (File No. 801-141-32), as most
recently amended, the text of which is incorporated herein by reference.
(c) BEE & ASSOCIATES, INCORPORATED
See "Management of the Portfolios" in the Prospectus and "Investment Management
and Other Services" in the Statement of Additional Information, (Parts A and B)
of this Registration Statement relating to the International Growth Portfolio.
Information as to Bee & Associates, Incorporated's directors and executive
officers is included in its Form ADV filed with the Securities and Exchange
Commission (File No. 801-345-38), as most recently amended, the text of which is
incorporated by reference.
(d) ANALYTIC INVESTORS, INC.
See "Management of the Portfolios" in the Prospectus and "Investment Management
and Other Services" in the Statement of Additional Information, (Parts A and B)
of this Registration Statement relating to the Growth Portfolio.
Information as to Analytic Investors, Inc.'s directors and executive officers is
included in its Form ADV filed with the Securities and Exchange Commission (File
No. 801-7082), as most recently amended, the text of which is incorporated
herein by reference.
(e) ALLMERICA ASSET MANAGEMENT, INC.
See "Management of the Portfolios" in the Prospectus and "Investment Management
and Other Services" in the Statement of Additional Information, (Parts A and B)
of this Registration Statement relating to the Strategic Income Portfolio.
Information as to the directors and executive officers of Allmerica Asset
Management, Inc. as included in its Form ADV filed with the Securities and
Exchange Commission (File No. 801-441-89), as most recently amended, the text of
which is incorporated herein by reference.
Item 27. PRINCIPAL UNDERWRITERS
Not Applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of (1) the Registrant, Allmerica Financial Investment
Management Services, Inc. and Allmerica Asset Management, Inc. 440 Lincoln
Street, Worcester, MA 01653; (2) GAMCO Investors, Inc., One Corporate Center,
Rye, NY 10580; (3) Bee & Associates, Incorporated, 370 17th Street, Denver, CO
80202; (4) Analytic Investors, Inc., 700 South Flower Street, Suite 2400, Los
Angeles, CA 90017; and (5) Investors Bank & Trust Company, 200 Clarendon Street,
Boston, MA 02111.
<PAGE>
Item 29. MANAGEMENT SERVICES
Not Applicable.
Item 30. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, The Fulcrum Trust certifies that it meets all of the requirements for
effectiveness of this Registration Statement under Rule 485(b) under the
Securities Act and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Boston, and
Commonwealth of Massachusetts on the 24th day of April, 2000.
THE FULCRUM TRUST
By: /s/ George J. Sullivan Jr.
---------------------------
George J. Sullivan, Jr.
Chairman, President and Trustee
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the following persons in the capacities and on the
date(s) indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ George J. Sullivan, Jr. Chairman, President and Trustee April 24, 2000
- ----------------------------- --------------
George J. Sullivan, Jr.
/s/ Thomas N. Dallape Trustee April 24, 2000
- ----------------------------- --------------
Thomas N. Dallape
/s/ Gordon Holmes Trustee April 24, 2000
- ----------------------------- --------------
Gordon Holmes
/s/ Paul T. Kane Treasurer April 24, 2000
- ----------------------------- Principal Financial Officer and --------------
Paul T. Kane Principal Accounting Officer
</TABLE>
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
Exhibit 4(c) Portfolio Manager Agreement among Registrant, the Manager
and Bee & Associates, Incorporated with respect to the
International Growth Portfolio dated November 23, 1999.
Exhibit 7 Custodian Agreement between the Registrant and Investors
Bank & Trust Company dated April 1, 1999.
Exhibit 8(a) Transfer Agency and Service Agreement between Registrant and
Investors Bank & Trust Company dated April 1, 1999.
Exhibit 8(b) Administration Services Agreement between AFIMS, Inc. the
Registrant and Investors Bank & Trust Company dated April 1,
1999.
Exhibit 10 Consent of independent accountants
Exhibit 16 Code(s) of Ethics of the Trust and Portfolio Managers
(a) The Fulcrum Trust
(b) Analytic Investors, Inc.
(c) Bee & Associates, Incorporated
(d) Gabelli Asset Management, Inc.
Exhibit 17 Power of Attorney dated April 24, 2000
<PAGE>
Exhibit 4 (c)
INTERNATIONAL GROWTH PORTFOLIO
PORTFOLIO MANAGER AGREEMENT
Agreement, made this 23rd day of November, 1999, among The Fulcrum Trust (the
"Trust"), a Massachusetts business trust; Allmerica Financial Investment
Management Services, Inc. (the "Manager"), a Massachusetts corporation; and Bee
& Associates Incorporated (the "Portfolio Manager"), a Colorado corporation.
WHEREAS, the Trust is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Manager and the Portfolio Manager are both registered as investment
advisers under the Investment Advisers Act of 1940; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate portfolios with each such portfolio representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Manager has entered into a management agreement with the Trust,
pursuant to which the Manager will provide, among other services, advice with
respect to the selection and monitoring of portfolio managers to handle the day-
to-day investment management of certain portfolios; and
WHEREAS, the Portfolio Manager currently handles the day-to-day investment
management of the International Growth Portfolio of the Trust (the "Portfolio")
under a Portfolio Manager Agreement dated October 12, 1995 as modified by a
Substitution Agreement dated February 11, 1998 (collectively, the "Old Bee
Agreement"); and
WHEREAS, the Trust Board voted to continue the Old Bee Agreement through
November 23, 1999 under Rule 15a-4 under the 1940 Act; and
WHEREAS the Trust, the Manager and the Portfolio Manager desire that the
Portfolio Manager continue to handle the day-to-day investment management of the
Portfolio with a change in the benchmark used for calculating the advisory fee.
Therefore, the parties agree as follows:
1. Appointment. The Trust hereby appoints the Portfolio Manager to provide
-----------
investment advisory services with respect to the Portfolio for the period and on
the terms set forth in this Agreement, subject to the direction of the Board of
Trustees of the Trust (the "Board of Trustees"). The Portfolio Manager accepts
such appointment and agrees to render the services described herein for the
compensation provided in paragraph 13.
2. Services of the Portfolio Manager.
---------------------------------
(a) Subject to the supervision of the Board of Trustees, the Portfolio Manager
will provide day-to-day investment management of the Portfolio. The Portfolio
Manager will
<PAGE>
provide investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Portfolio's assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Portfolio, when these transactions should be
executed, and what portion of the assets of the Portfolio should be held in the
various securities and other investments in which it may invest. The Portfolio
Manager is hereby authorized to execute and perform such services on behalf of
the Portfolio. To the extent permitted by the investment policies of the
Portfolio, the Portfolio Manager shall make decisions for the Portfolio as to
foreign currency matters and make determinations as to, and execute and perform,
foreign currency exchange contracts on behalf of the Portfolio. The Portfolio
Manager will provide the services under this Agreement in accordance with the
Portfolio's investment objective or objectives, policies, and restrictions as
stated in the Trust's registration statement under the Securities Act of 1933
and the 1940 Act as filed with the Securities and Exchange Commission ("SEC")
and amended from time to time (the "Registration Statement").
(b) The Portfolio Manager will use reasonable efforts to manage the Portfolio
so that it will (1) qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code, (2) comply with the diversification requirements
of Section 817(h) of the Internal Revenue Code and regulations issued
thereunder, and (3) comply with any other rules and regulations pertaining to
investment vehicles underlying variable annuity or variable life insurance
policies. In managing the Portfolio in accordance with these requirements, the
Portfolio Manager shall be entitled to receive and act upon advice of counsel to
the Trust or counsel to the Manager.
(c) On occasions when the Portfolio Manager deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as any other
investment advisory clients, the Portfolio Manager may, to the extent permitted
by applicable laws and regulations, including, but not limited to Section 17(d)
of the 1940 Act, but shall not be obligated to, aggregate the securities to be
so sold or purchased with those of its other clients where such aggregation is
not inconsistent with the policies set forth in the Registration Statement. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Portfolio Manager in a
manner that is fair and equitable in the judgment of the Portfolio Manager in
the exercise of its fiduciary obligations to the Trust and to such other
clients.
(d) In connection with the purchase and sale of securities for the Portfolio,
the Portfolio Manager will arrange for the transmission to the custodian for the
Trust on a daily basis, such confirmation, trade tickets, and other documents
and information as may be reasonably necessary to enable the custodian to
perform its administrative and recordkeeping responsibilities with respect to
the Portfolio. With respect to portfolio securities to be purchased or sold
through the Depository Trust Company, the Portfolio Manager will arrange for the
automatic transmission of the confirmation of such trades to the Trust's
custodian. The Portfolio Manager will provide to the Manager copies of the
documents and information sent to the custodian and the Depository Trust Company
as requested by the Manager.
2
<PAGE>
(e) The Portfolio Manager will assist the custodian or recordkeeping agent for
the Trust in determining, consistent with the procedures and policies stated in
the Registration Statement, the value of any portfolio securities or other
assets of the Portfolio for which the custodian or recordkeeping agent seeks
assistance or review from the Portfolio Manager. The Portfolio Manager will
monitor on a daily basis the determination by the custodian or recordkeeping
agent for the Trust the value of portfolio securities and other assets of the
Portfolio and the determination of net asset value of the Portfolio.
(f) The Portfolio Manager shall regularly report to the Board of Trustees on
the investment program for the Portfolio, and will furnish the Board of Trustees
such periodic and special reports as the Board may reasonably request.
(g) The Portfolio Manager shall make its officers and employees available to
the Board of Trustees, officers of the Trust, and officers of the Manager for
consultation and discussions regarding the investment program for the Portfolio.
3. Broker-Dealer Selection. The Portfolio Manager is responsible for
-----------------------
decisions to buy and sell securities and other investments for the Portfolio,
broker-dealer selection, and negotiation of brokerage commission rates. The
Portfolio Manager's primary consideration in effecting a security transaction
will be to obtain the best execution for the Portfolio, taking into account the
factors specified in the Registration Statement. Subject to the Registration
Statement and such policies as the Board of Trustees may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of its
having caused the Portfolio to pay a broker-dealer for effecting a portfolio
investment transaction in excess of the amount of commission another broker-
dealer would have charged for effecting that transaction, if the Portfolio
Manager determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Portfolio Manager's overall responsibilities with respect to the Portfolio and
to its other clients as to which it exercises investment discretion.
4. Employees. In rendering the services required under this Agreement, the
---------
Portfolio Manager may, from time to time, employ such person or persons as it
believes necessary to assist it in carrying out its obligations under this
Agreement. The Portfolio Manager shall be responsible for making reasonable
inquiries and for reasonably ensuring that no employee of the Portfolio Manager:
(a) has been convicted, in the last ten (10) years, of any felony or
misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, or involving violations
of Sections 1341, 1342, or 1343 of Title 18, United States Code; or
(b) has been found by any state regulatory authority, within the last ten (10)
years, to have violated or to have acknowledged violation of any provision of
any state insurance law involving fraud, deceit, or knowing misrepresentation;
or
3
<PAGE>
(c) has been found by any federal or state regulatory authorities, within the
last ten (10) years, to have violated or to have acknowledged violation of any
provisions of federal or state securities laws involving fraud, deceit, or
knowing misrepresentation; or
(d) is ineligible by reason of Section 9 of the 1940 Act to serve as an
employee of an investment adviser to an investment company.
5. Conformity with Applicable Law. The Portfolio Manager, in the performance
------------------------------
of its duties and obligations under this Agreement, shall act in conformity with
the Registration Statement and with the instructions and directions of the Board
of Trustees and will conform to, and comply with, the requirements of the 1940
Act and all other applicable federal and state laws and regulations.
6. Exclusivity. The services of the Portfolio Manager under this Agreement
-----------
are deemed exclusive with respect to managing a registered investment company
(or portfolio thereof) (1) which serves as the underlying investment vehicle for
variable life insurance policies and/or variable annuity contracts and (2) which
pays its adviser(s) fees based on investment performance ("performance-based
fees"). As long as this Agreement is in effect, neither the Portfolio Manager
nor its affiliates may serve as an investment adviser to or investment manager
of a registered investment company (or portfolio thereof) (1) which serves as
the underlying investment vehicle for variable life insurance policies and/or
variable annuity contracts and (2) which pays performance-based fees to some or
all of its advisers. The services of the Portfolio Manager under this Agreement
are also deemed exclusive with respect to managing a registered investment
company (or portfolio thereof) (1) which serves as the underlying investment
vehicle for variable life insurance policies and/or variable annuity contracts
and (2) shares of which are purchased by one or more of its advisers. As long as
this Agreement is in effect, neither the Portfolio Manager nor its affiliates
may serve as an investment adviser to or investment manager of a registered
investment company (or portfolio thereof) (1) which serves as the underlying
investment vehicle for variable life insurance policies and/or variable annuity
contracts and (2) shares of which are purchased by one or more of its advisers.
Notwithstanding the foregoing exclusivity, nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from engaging in the following
activities, provided that the Portfolio Manager's services to the Portfolio are
not impaired thereby: (1) serving as investment adviser to or investment manager
of a registered investment company (or portfolio thereof) which does not serve
as the underlying investment vehicle for variable life insurance policies and/or
variable annuity contracts; or (2) serving as investment adviser to or
investment manager of a registered investment company (or portfolio thereof)
which does not pay any of its advisers a performance-based fee and shares of
which are not purchased by one or more of its advisers, whether or not it serves
as the underlying investment vehicle for variable life insurance policies and/or
variable annuity contracts.
4
<PAGE>
7. Documents. The Trust has delivered copies of each of the following
---------
documents to the Portfolio Manager and will deliver to it all future amendments
and supplements thereto, if any:
(a) the Trust's Declaration of Trust and its by-laws;
(b) the Registration Statement; and
(c) the prospectus and statement of additional information of the Trust as
currently in effect and as amended and supplemented from time to time.
8. Records. The Portfolio Manager agrees to maintain and to preserve records
-------
relating to the Trust as required by the 1940 Act. The Portfolio Manager further
agrees that all records which it maintains for the Trust are the property of the
Trust and it will promptly surrender any of such records upon request.
9. Disclosure by Portfolio Manager. The Portfolio Manager will not disclose
-------------------------------
or use any records or information obtained pursuant to this Agreement (excluding
investment research and investment advice) in any manner whatsoever except as
required to carry out its duties as investment adviser or in the ordinary course
of business in connection with placing orders for the purchase and sale of
securities, and will keep confidential any information obtained pursuant to this
Agreement, and disclose such information only if the Board of Trustees has
authorized such disclosure, or if such disclosure is expressly required by
applicable federal or state law or regulations or regulatory authorities having
the requisite authority.
10. Disclosure about Portfolio Manager. The Portfolio Manager has reviewed the
----------------------------------
current version of the Trust's prospectus and statement of additional
information and represents and warrants that, with respect to the disclosure
relating to the Portfolio Manager, such documents contain, as of the date
hereof, no untrue statement of any material fact and do not omit any statement
of a material fact which was required to be stated therein or necessary to make
the statements contained therein not misleading. The Portfolio Manager further
represents and warrants that it is a duly registered investment adviser under
the Investment Advisers Act of 1940 and a duly registered investment adviser in
all states in which the Portfolio Manager is required to be registered.
11. Compliance. The Portfolio Manager agrees that it shall immediately notify
----------
the Manager and the Trust in the event that:
(a) the SEC has censured the Portfolio Manager; placed limitations upon its
activities, functions or operations; suspended or revoked its registration as an
investment adviser; or commenced proceedings or an investigation that may result
in any of these actions; or
5
<PAGE>
(b) the Portfolio Manager has a reasonable basis for believing that the
Portfolio has ceased to qualify or might not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code; or
(c) the Portfolio Manager has a reasonable basis for believing that the
Portfolio has ceased to comply or might not comply with the diversification
provisions of Section 817(h) of the Internal Revenue Code or the regulations
thereunder; or
(d) the Portfolio Manager has become aware of a material fact that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or that any statement contained therein that
has become untrue or misleading in any material respect.
12. Expenses. During the term of this Agreement, the Portfolio Manager will
--------
pay all expenses incurred by it in connection with its activities under this
Agreement, including all rent and other expenses involved in providing office
space and equipment required by the Portfolio Manager and the salaries and
expenses of all personnel of the Portfolio Manager. The Portfolio Manager
further agrees to pay all salaries, fees and expenses of any officer or trustee
of the Trust who is an officer, director or employee of the Portfolio Manager or
any of its affiliates. Nothing in this Agreement shall require the Portfolio
Manager to bear the following expenses:
(a) Fees of the Manager;
(b) Charges for audits by the Trust's independent public accountants;
(c) Charges of the Trust's transfer agent, registrar, and/or dividend
disbursing agent;
(d) Charges of the Trust's custodian and/or accountant;
(e) Costs of obtaining quotations for calculating the value of each Portfolio's
net assets;
(f) Costs of maintaining the Trust's tax records;
(g) Salaries and other compensation of any of the Trust's executive officers
and employees, if any, who are not officers, directors, or employees of the
Portfolio Manager or any of its affiliates;
(h) Taxes levied against the Trust;
(i) Brokerage fees and commissions in connection with the purchase and sale of
portfolio securities for the Trust;
(j) Costs, including the interest expense, of borrowing by the Trust;
(k) Costs and/or fees incident to meetings of the Trust's shareholders, the
preparation and mailings of prospectuses, reports, proxy statements and other
communications by the
6
<PAGE>
Trust to its shareholders, the filing of reports with regulatory bodies, the
maintenance of the Trust's existence, and the registration of shares with
federal and state securities or insurance authorities;
(l) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(m) Costs of printing stock certificates representing shares of the Trust;
(n) Trustees' fees and expenses of Trustees who are not officers, directors, or
employees of the Portfolio Manager or any affiliates;
(o) Trust's pro rata portion of the fidelity bond required by Section 17(g) of
the 1940 Act, or other insurance premiums;
(p) Membership dues for any association of which the Trust is a member;
(q) Extraordinary expenses of the Trust as may arise, including expenses
incurred in connection with litigation, proceedings, other claims against the
Trust (unless the Portfolio Manager is responsible for such expenses under
paragraph 14 of this Agreement), and the legal obligations of the Trust to
indemnify its trustees, officers, employees, shareholders, distributors, and
agents with respect to such claims; and
(r) Organizational and offering expenses of the Trust and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
13. Compensation.
------------
(a) For the services provided and the expenses borne by the Portfolio Manager
pursuant to this Agreement, the Trust will pay the Portfolio Manager 80% of the
advisory fee as determined by this Agreement. The Trust will pay the other 20%
to the Manager.
(b) For the period beginning with November 23, 1999 and ending with November
30, 1999, the Portfolio will pay at the end of November 1999, an advisory fee
calculated in accordance with the Old Bee Agreement.
(c) For the period beginning with December 1, 1999 and continuing through the
remainder of the term of this Agreement, the Portfolio will pay at the end of
each month, an advisory fee (the "Monthly Advisory Fee"). The Monthly Advisory
Fee equals the Basic Fee (as defined in paragraph 13(d) below) plus the
Incentive Fee (as defined in paragraph 13(e) below) and adjusted, if so
required, by paragraph 13(h) or paragraph 13(i) below.
(d) The Basic Fee equals one-twelfth of 2% multiplied by the Portfolio's
average daily net assets for the previous 12 months (including the month for
which the fee is being calculated).
7
<PAGE>
(e) The Incentive Fee equals: (i) one-twelfth of the Annual Incentive Fee set
forth in the chart below based on the difference between the Performance of the
Portfolio and the Performance of the Benchmark, as those terms are defined in
paragraphs 13(f) and 13(g) below; (ii) multiplied by the Portfolio's average
daily net assets for the previous 12 months (including the month for which the
fee is being calculated).
<TABLE>
<CAPTION>
========================================================================================
Annual
Percentage Point Difference Between Performance of the Portfolio and Incentive Fee
Performance of the Benchmark (%)
----------------------------------------------------------------------------------------
<S> <C>
+7.5 or greater 2.0%
----------------------------------------------------------------------------------------
+6.0 or greater, but less than +7.5 1.5
----------------------------------------------------------------------------------------
+4.5 or greater, but less than +6.0 1.0
----------------------------------------------------------------------------------------
+3.0 or greater, but less than +4.5 0.5
----------------------------------------------------------------------------------------
+1.5 or greater, but less than +3.0 0.0
----------------------------------------------------------------------------------------
0.0 or greater, but less than +1.5 -0.5
----------------------------------------------------------------------------------------
-1.5 or greater, but less than 0.0 -1.0
----------------------------------------------------------------------------------------
-3.0 or greater, but less than -1.5 -1.5
----------------------------------------------------------------------------------------
Less than -3.0 -2.0
========================================================================================
</TABLE>
(f) The Performance of the Portfolio will be calculated by first determining
the change in the Portfolio's net asset value per share during the previous
twelve months (including the month for which the fee is being computed) assuming
the reinvestment of distributions during that period, and then expressing this
amount as a percentage of the net asset value per share at the beginning of the
period. Net asset value per share is calculated by dividing the value of the
securities held by the Portfolio plus any cash or other assets minus all
liabilities including accrued advisory fees and the other expenses, by the total
number of shares outstanding at the time. The Performance of the Portfolios
shall be calculated in accordance with SEC rules.
(g) The Performance of the Benchmark will be calculated by first determining
the change in the level of the Benchmark during the previous twelve months
(including the month for which the fee is being computed) plus the value of any
cash dividends or distributions made by the companies whose securities comprise
the Benchmark accumulated to the end of the period, and then expressing this
amount as a percentage of
8
<PAGE>
the Benchmark at the beginning of the period. The Performance of the Benchmark
shall be calculated in accordance with SEC rules. The Benchmark is the Morgan
Stanley EAFE Small Cap Index. If the Benchmark ceases to be published, changes
in any material respect or otherwise becomes impracticable to use for purposes
of the Incentive Fee, the Monthly Advisory Fee will equal the Basic Fee (with no
incentive adjustment) until such time as the Board of Trustees approves a
substitute Benchmark.
(h) Notwithstanding paragraphs 13(a)-13(g) above, if the Performance of a
Portfolio (minus payment of all expenses, including the Basic Fee and any
Incentive Fee) is negative and does not exceed the Performance of the Benchmark
by six percentage points, then the Monthly Advisory Fee will equal zero.
Notwithstanding paragraphs 13(a)-13(g) above, if the Performance of a Portfolio
(minus payment of all expenses, including the Basic Fee and any Incentive Fee)
is negative, exceeds the Performance of the Benchmark by six percentage points,
but does not exceed the Performance of the Benchmark by twelve percentage
points, then the Monthly Advisory Fee will not be greater than one-twelfth of 1%
of the Portfolio's average daily net assets for the previous 12 months
(including the month for which the fee is being calculated). Notwithstanding
paragraphs 13(a)-13(g) above, if the Performance of a Portfolio (minus payment
of all expenses, including the Basic Fee and any Incentive Fee) is negative and
exceeds the Performance of the Benchmark by twelve percentage points, then the
Monthly Advisory Fee will not be greater than one-twelfth of 2% of the
Portfolio's average daily net assets for the previous 12 months (including the
month for which the fee is being calculated).
(i) Notwithstanding paragraphs 13(a) - 13(h) above, for the period beginning
with December 1, 1999 and ending with November 30, 2000, the Monthly Advisory
Fee will equal the lesser of the Monthly Advisory Fee calculated pursuant to
paragraphs 13(a) - 13(h) above or the Old Bee Agreement.
14. Liability and Indemnification. The Portfolio Manager, the Manager and the
-----------------------------
Trust each may rely on information reasonably believed by it to be accurate and
reliable. The Portfolio Manager shall not be liable to the Trust or its
shareholders for any loss suffered by the Trust as the result of any negligent
act or error of judgment of the Portfolio Manager in connection with the matters
to which this Agreement relates, except a loss resulting from a breach by the
Portfolio Manager of its fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. The Trust shall indemnify the
Portfolio Manager and hold it harmless from all cost, damage and expense,
including reasonable expenses for legal counsel, incurred by the Portfolio
Manager resulting from actions for which it is relieved of responsibility by
this paragraph. The Portfolio Manager shall indemnify the Trust and hold it
harmless from all cost, damage and expense, including reasonable expenses for
legal counsel, incurred by the Trust resulting from (i) a breach by the
Portfolio Manager of its fiduciary duty with respect to compensation for
services paid by the Trust (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act);
(ii) willful misfeasance, bad faith or gross negligence
9
<PAGE>
by the Portfolio Manager in the performance of its duties under this Agreement;
or (iii) reckless disregard by the Portfolio Manager of its obligations and
duties under this Agreement.
15. Continuation and Termination. This Agreement shall take effect on the date
----------------------------
first written above, and shall continue in effect, unless sooner terminated as
provided herein, for two years from such date and shall continue from year to
year thereafter so long as such continuance is specifically approved at least
annually (i) by the vote of a majority of the Board of Trustees; or (ii) by vote
of a majority of the outstanding voting shares of the Portfolio; provided,
further, in either event that continuance is also approved by the vote of a
majority of the Board of Trustees who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of the Trust, the Manager or
the Portfolio Manager cast in person at a meeting called for the purpose of
voting on such approval. This Agreement may be terminated (i) by the Trust at
any time, without the payment of any penalty, by vote of a majority of the
entire Board of Trustees or by a vote of a majority of the outstanding voting
shares of the Portfolio, on sixty (60) days' written notice to the Manager and
the Portfolio Manager, (ii) by the Manager at any time, without the payment of
any penalty, on ninety (90) days' written notice to the Trust and the Portfolio
Manager, or (iii) by the Portfolio Manager at any time, without the payment of
any penalty, on ninety (90) days' written notice to the Trust and the Manager.
This Agreement will automatically and immediately terminate in the event of its
"assignment" (as defined in the 1940 Act).
16. Independent Contractor. The Portfolio Manager shall for all purposes
----------------------
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Board of Trustees from time to
time, have no authority to act for or represent the Trust in any way or
otherwise be deemed its agent.
17. Use of Name. It is understood that the words"Fulcrum Fund," "Fulcrum
-----------
Trust," any derivative thereof and any design associated with those words
(collectively, the "Words and Designs") are the valuable property of the
Manager, and that the Portfolio Manager shall have the right to use the Words
and Designs only with the approval of the Manager. Upon termination of this
Agreement, the Portfolio Manager shall promptly discontinue all use of the Words
and Designs.
18. Sales Literature. The Manager agrees to furnish to the Portfolio Manager
----------------
all sales literature which refers to the Portfolio Manager prior to use thereof
and not to use such sales literature if the Portfolio Manager reasonably objects
in writing five business days (or such other time as may be mutually agreed)
after receipt thereof. Sales literature may be furnished to the Portfolio
Manager by first class mail, overnight delivery service, facsimile transmission
equipment, or hand delivery.
10
<PAGE>
19. Notice. Notices of any kind to be given to the Trust shall be in writing
------
and shall be duly given if sent by first class mail or delivered to the Trust at
440 Lincoln Street, Worcester, Massachusetts, 01653, or at such other address or
to such individual as shall be specified by the Trust (with proper notice to the
Manager and the Portfolio Manager). Notices of any kind to be given to the
Manager shall be in writing and shall be duly given if sent by first class mail
or delivered to the Manager at 440 Lincoln Street, Worcester, Massachusetts,
01653, or at such other address or to such individual as shall be specified by
the Manager (with proper notice to the Trust and the Portfolio Manager). Notices
of any kind to be given to the Portfolio Manager shall be in writing and shall
be duly given if sent by first class mail or delivered to Bee & Associates
Incorporated, 370 17th Street, Suite 5150, Denver, Colorado 80202, or at such
other address or to such individual as shall be specified by the Portfolio
Manager (with proper notice to the Trust and the Manager).
20. Obligation. A copy of the Trust's Agreement and Declaration of Trust is on
----------
file with the Secretary of the Commonwealth of Massachusetts. Notice is hereby
given that this Agreement has been executed on behalf of the Trust by a trustee
of the Trust in his or her capacity as trustee and not individually. The
obligations of this Agreement shall only be binding upon the assets and property
of the Trust and shall not be binding upon any trustee, officer, or shareholder
of the Trust individually.
21. Counterparts. This Agreement may be executed in one or more counterparts,
------------
each of which shall be deemed to be an original.
22. Applicable law. This Agreement shall be governed by the laws of
--------------
Massachusetts, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rules or order of the SEC thereunder.
23. Severability. If any provision of this Agreement shall be held or made
------------
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
24. Captions. The captions of this Agreement are included for convenience only
--------
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
11
<PAGE>
The Fulcrum Trust
By: /s/ Stephen W. Bright
__________________________ ---------------------
Witness
Allmerica Financial Investment
Management Services, Inc.
By: /s/ John P. Kavanaugh
__________________________ ---------------------
Witness
Bee & Associates Incorporated
By: /s/ Edward N. McMillan
__________________________ ----------------------
Witness Title: President
12
<PAGE>
Exhibit 7
CUSTODIAN AGREEMENT
between
INVESTORS BANK & TRUST COMPANY
and
THE FULCRUM TRUST
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this 1st day of April, 1999, between THE FULCRUM
TRUST, a Massachusetts business trust (the "Fund"), and INVESTORS BANK & TRUST
COMPANY, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company on behalf of the
portfolios/series listed on Appendix A hereto (as such Appendix A may be amended
---------- ----------
from time to time) (each a "Portfolio" and collectively, the "Portfolios"),
desires to place and maintain all of its portfolio securities and cash in the
custody of the Bank. The Bank has at least the minimum qualifications required
by Section 17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to
act as custodian of the portfolio securities and cash of the Fund, and has
indicated its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
------------------------
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on Appendix B
----------
hereto.
2. Definitions. Whenever used herein, the terms listed below will have
-----------
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the person
-----------------
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
-----
Trustees of the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same
--------
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean any Security
------------------
owned by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
<PAGE>
2.6 Book-Entry System. Book-Entry System shall mean the Federal
-----------------
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
----------
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
-------------------
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and shall use reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy promptly to the Fund. The Fund shall be responsible, at the
Fund's expense, for taking any action, including any reprocessing, necessary to
correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank Proper Instructions as to the
action required. Upon receipt by the Bank of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. Separate Accounts. The Bank will segregate the assets of each
-----------------
Portfolio to which this Agreement relates into a separate account for each such
Portfolio containing the assets of such Portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this Agreement
to any actions to be taken by the Fund shall be deemed to refer to the Fund
acting on behalf of one or more of its Portfolios, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable Portfolio, any duty or obligation of the Bank
hereunder to the Fund shall be deemed to refer to duties and obligations with
respect to such individual Portfolio and any obligation or liability of the Fund
hereunder shall be binding only with respect to such individual Portfolio, and
shall be discharged only out of the assets of such Portfolio.
4. Certification as to Authorized Persons. The Secretary or Assistant
--------------------------------------
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any
2
<PAGE>
Officers' Certificate given to it by the Fund which has been signed by
Authorized Persons named in the most recent certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
---------------
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts and in order to allow the
Bank to comply with applicable Federal Deposit Insurance Corporation and Federal
Reserve Board regulations, the Bank may segregate certain portions of the cash
of the Fund into a separate savings deposit account upon which the Bank reserves
the right to require seven (7) days notice prior to withdrawal of cash from such
an account. The Fund may at any time instruct the Bank to cease such
segregation of the Fund's cash. Upon receipt by the Bank of Proper Instructions
(which may be continuing instructions) or in the case of payments for
redemptions and repurchases of outstanding shares of common stock of the Fund,
notification from the Fund's transfer agent as provided in Section 7, requesting
such payment, designating the payee or the account or accounts to which the Bank
will release funds for deposit, and stating that it is for a purpose permitted
under the terms of this Section 5, specifying the applicable subsection, the
Bank will make payments of cash held for the accounts of the Fund, insofar as
funds are available for that purpose, only as permitted in subsections 5.1-5.9
below.
5.1 Purchase of Securities. Upon the purchase of securities for the
----------------------
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the
-----------
repurchase or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the
----------------------------------
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection
--------------------------------
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund,
------------------
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
3
<PAGE>
5.6 Repayment of Cash. To repay the cash delivered to the Fund for
-----------------
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
-----------------------------
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made. The Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books, provided that if the obligations secured pursuant to
this section can be allocated to a specific Portfolio, such security interest
will be limited to the property held for that Portfolio only.
5.8 Other Authorized Payments. For other authorized transactions of
-------------------------
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as
-----------
hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided
----------------------------
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury
4
<PAGE>
Department issued thereunder, and will execute and deliver all such certificates
in connection therewith as may be required by such laws or regulations or under
the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
------------------
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund or, if so instructed
by the Fund, to the investment advisor, all notices, proxies and proxy
soliciting materials delivered to the Bank with respect to such Securities, such
proxies to be executed by the registered holder of such Securities (if
registered otherwise than in the name of the Fund), but without indicating the
manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
----------------
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund or, if so instructed by the Fund, the investment advisor,
promptly of the Corporate Action, the Response required in connection with the
Corporate Action and the Bank's deadline for receipt from the Fund of Proper
Instructions regarding the Response (the "Response Deadline"). The Bank shall
use commercially reasonable efforts to monitor Corporate Action activity related
to Portfolio Securities. The Bank also shall employ systems to track the status
of required Responses and the corresponding Corporate Action expiration dates at
the applicable depository. The Bank shall forward to the Fund via telecopier
and/or overnight courier all notices, information statements or other materials
relating to the Corporate Action promptly after receipt of such materials by the
Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m.
on the date specified as the Response Deadline and only if the Bank (or its
agent or subcustodian hereunder) has actual possession of all necessary
Securities, consents and other materials no later than 5:00 p.m. on the date
specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response
if Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank by 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank shall use its best efforts to act upon a Response for
which Proper Instructions and/or necessary Securities, consents or other
materials are received by the Bank after 5:00 p.m. on the date specified as the
Response Deadline, it being acknowledged and agreed by the parties that while
any undertaking by the Bank to use its best efforts in such circumstances shall
not create a duty upon the Bank to complete such Response prior to its
expiration, the Bank nevertheless shall use its best efforts to do so.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be one business day prior to the
Response expiration time set by the depository processing such Corporate Action
provided that the Fund has the information necessary to direct such Response.
5
<PAGE>
(d) Section 14.3(g) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign Sub-
Custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a
-----------------
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash or securities
collateral against the delivery of securities loaned by the Fund has been
transferred to the Account; and
(ii) the making of an entry on the records of the Bank (or
its agent) to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Book-Entry System of transfers of securities for
the account of the Fund shall identify the Fund, be maintained for the Fund by
the Bank and shall be provided to the Fund at its request. The Bank shall send
the Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any
transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a
-------------------
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
6
<PAGE>
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository and held for the account of
the Bank for its customers;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment therefor or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall use its best efforts and reasonable care to
provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Proxy materials received by a Depository with respect
to Portfolio Securities deposited with such Depository are forwarded immediately
to the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and the Rules thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository, and the Bank
shall, upon request by the Fund, forward such reports to the Fund.
6.6 Use of Book-Entry System for Commercial Paper. Provided the Bank
---------------------------------------------
has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper"), upon receipt of Proper
Instructions and upon receipt of confirmation from an Issuer (as defined below)
that the Fund has purchased such Issuer's Book-Entry Paper, the Bank shall issue
and hold in book-entry form, on behalf
7
<PAGE>
of the Fund, commercial paper issued by issuers with whom the Bank has entered
into a book-entry agreement (the "Issuers"). In maintaining procedures for Book-
Entry Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund
in an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Fund's purchase
of Book-Entry Paper through the Bank will identify, by book-entry, commercial
paper belonging to the Fund which is included in the Book-Entry System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund; and
(e) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has
------------------------------
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar
--------------
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Portfolio Securities are identified on the books of the Bank
as belonging to the Fund and that the books of the Bank identify the European
Branch holding such Portfolio Securities. Notwithstanding any other provision of
this Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8 and provided it acts without negligence, bad faith and willful
misconduct, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund.
6.9 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written) by the Fund regarding
escrow or other arrangements (i) in accordance with the provisions of any
agreement entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"), and, if necessary, the Fund, relating to the compliance with
the rules of the Options Clearing
8
<PAGE>
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
(ii) Unless another agreement requires it to do so, the
Bank shall be under no duty or obligation to see that the Fund has deposited or
is maintaining adequate margin, if required, with any broker in connection with
any option, nor shall the Bank be under duty or obligation to present such
option to the broker for exercise unless it receives Proper Instructions from
the Fund. The Bank shall have no responsibility for the legality of any put or
call purchased or sold on behalf of the Fund, the propriety of any such purchase
or sale, or the adequacy of any collateral delivered to a broker in connection
with an option or deposited to or withdrawn from a Segregated Account (as
defined in subsection 6.10 below). The Bank specifically, but not by way of
limitation, shall not be under any duty or obligation to: (i) periodically check
or notify the Fund that the amount of such collateral held by a broker or held
in a Segregated Account is sufficient to protect such broker or the Fund against
any loss; (ii) effect the return of any collateral delivered to a broker; or
(iii) advise the Fund that any option it holds, has or is about to expire. Such
duties or obligations shall be the responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement entered into upon the receipt of Proper
Instructions among the Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund.
(ii) The responsibilities of the Bank as to futures, puts
and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(ii) of this Section 6.9 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
------------------
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement
among the Fund, the Bank and a broker-dealer registered under the Exchange Act
and a member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio
9
<PAGE>
Securities and all the Fund's then outstanding commitments under reverse
repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in the
case of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the executive committee of
the Board signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with
the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii)
or (a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment
or when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
--------------------------------------
receipt of Proper Instructions relating to the purchase by the Fund of interest-
bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange, deliver
----------------------
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that
10
<PAGE>
any transfer, exchange, delivery or release under this Section shall be made
only in accordance with Proper Instructions. The Proper Instructions shall state
that such transfer, exchange or delivery is for a purpose permitted under the
terms of this Section 6.12, and shall specify the applicable subsection, or
describe the purpose of the transaction with sufficient particularity to permit
the Bank to ascertain the applicable subsection. After receipt of such Proper
Instructions, the Bank will transfer, exchange, deliver or release Portfolio
Securities only in the following circumstances:
(a) Upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided, however, that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank, absent its own negligence, bad faith
and willful misconduct, shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
11
<PAGE>
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to
a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
-----------
Bank in connection with redemptions and repurchases by the Fund of outstanding
common shares, the Bank will rely on notification by the Fund's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Articles of Incorporation or Declaration of Trust and By-
laws of the Fund (the "Articles"), from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
---------------------------------
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees through
the end of the then current term of this Agreement, disbursements and expenses
of the Bank and satisfactory completion of any other duties and obligations of
the Bank hereunder, this Agreement will terminate and the Bank shall be released
from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
-------------------------------------------
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent, if any:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received
12
<PAGE>
by it for the account of the Fund and hold for the account of the Fund all
income, dividends, interest and other payments or distributions of cash with
respect to the Portfolio Securities held thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
------------------------
collect promptly any funds which may to its knowledge become collectible arising
from Portfolio Securities, including dividends, interest and other income, and
to transmit promptly to the Fund notice actually received by it of any call for
redemption, offer of exchange, right of subscription, reorganization or other
proceedings affecting such Securities. If Portfolio Securities upon which such
income is payable are in default or payment is refused after due demand or
presentation, the Bank will notify the Fund in writing of any default or refusal
to pay within two business days from the day on which it receives knowledge of
such default or refusal.
11. Maintenance of Records and Accounting Services. The Bank will
----------------------------------------------
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the books of account
and render statements or copies from time to time as reasonably requested by the
Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
13
<PAGE>
The books and records maintained by the Bank on behalf of the Fund are the
property of the Fund and will be surrendered to the Fund upon request.
12. Fund Evaluation and Yield Calculation
-------------------------------------
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
---------------
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of the Fund, such determination to be made in accordance with the
provisions of the Articles and By-laws of the Fund and the Prospectus and
Statement of Additional Information relating to the Fund, as they may from time
to time be amended, and any applicable resolutions of the Board or procedures
adopted by the Board at the time in force and applicable; and promptly to notify
the Fund, the proper exchange and the NASD or such other persons as the Fund may
request of the results of such computation and determination. In computing the
net asset value hereunder, the Bank may rely in good faith upon information
furnished to it by any Authorized Person in respect of (i) the manner of accrual
of the liabilities of the Fund and in respect of liabilities of the Fund not
appearing on its books of account kept by the Bank, (ii) reserves, if any,
authorized by the Board or that no such reserves have been authorized, (iii) the
source of the quotations to be used in computing the net asset value, (iv) the
value to be assigned to any security for which no price quotations are
available, and (v) the method of computation of the public offering price on the
basis of the net asset value of the shares, and the Bank shall not be
responsible for any loss occasioned by such reliance or, absent any negligence,
bad faith and willful misconduct by the Bank, for any good faith reliance on
any quotations received from a source pursuant to (iii) above.
12.2. Yield Calculation. The Bank will compute the performance
-----------------
results of the Fund (the "Yield Calculation") in accordance with the provisions
of Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the
"Releases") promulgated by the Securities and Exchange Commission, and any
subsequent amendments to, published interpretations of or general conventions
accepted by the staff of the Securities and Exchange Commission with respect to
such releases or the subject matter thereof ("Subsequent Staff Positions"),
subject to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund
for the stated periods of time as shall be mutually agreed upon, and communicate
in a timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive
the items of data necessary for the computation from the records it generates
and maintains for the Fund pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers, provided, however, the Bank shall promptly notify the
Fund if the Bank becomes aware that such data is, or may be, inaccurate or
incorrect.
(c) At the request of the Bank, the Fund shall provide, and the
Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods set
forth in the Releases or any Subsequent Staff Positions as they specifically
apply to the Fund. In the event that the computation methods in the Releases or
the Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a
14
<PAGE>
security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital) or otherwise or as to
any other element of the computation which is pertinent to the Fund, the Fund or
its designated agent shall have the responsibility for making the determination
of how the security or payment is to be treated for purposes of the computation
and how the computation is to be made and shall inform the Bank thereof on a
timely basis. The Bank shall have no responsibility to make independent
determinations with respect to any item which is covered by this Section, and
shall not be responsible for its computations made in accordance with such
determinations absent negligence, bad faith and willful misconduct by the Bank
in the performance of such computations.
(d) The Fund shall keep the Bank informed of information and
non-public advice, or information obtained by the Fund from its independent
auditors or by its personnel or the personnel of its investment adviser, or
Subsequent Staff Positions related to the computations to be undertaken by the
Bank pursuant to this Agreement and the Bank shall not be deemed to have
knowledge of such non-public information (except as contained in the Releases)
unless it has been furnished to the Bank in writing.
13. Additional Services. The Bank shall perform the additional services
-------------------
for the Fund as are set forth on Appendix C hereto. Appendix C may be amended
---------- ----------
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix B shall be appropriately increased.
----------
14. Duties of the Bank.
------------------
14.1 Performance of Duties and Standard of Care. In performing its
------------------------------------------
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund
or the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend; and
(f) absent negligence, bad faith and willful misconduct by the
Bank, any property or moneys of the Fund unless and until received by it, and
any such property or moneys delivered or paid by it pursuant to the terms
hereof.
15
<PAGE>
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund.
-------------------------------------------------------------
The Bank may employ agents of its own selection in the performance of its duties
hereunder and shall be responsible for the acts and omissions of such agents as
if performed by the Bank hereunder. Without limiting the foregoing, certain
duties of the Bank hereunder may be performed by one or more affiliates of the
Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Fund, provided that any such subcustodian
meets at least the minimum qualifications required by Section 17(f)(1) of the
1940 Act to act as a custodian of the Fund's assets with respect to property of
the Fund held in the United States. The Bank shall have no liability to the Fund
or any other person by reason of any act or omission of any subcustodian
selected by or at the direction of the Fund and the Fund shall indemnify the
Bank and hold it harmless from and against any and all actions, suits and
claims, arising directly or indirectly out of the performance of any such
subcustodian. Upon request of the Bank, the Fund shall assume the entire defense
of any action, suit, or claim subject to the foregoing indemnity. The Fund shall
pay all fees and expenses of any subcustodian as provided in the fee schedule
attached as Appendix B hereto.
----------
14.3 Duties of the Bank with Respect to Property of the Fund Held
------------------------------------------------------------
Outside of the United States.
- ----------------------------
(a) Appointment of Foreign Sub-Custodians. The Fund hereby
-------------------------------------
authorizes and instructs the Bank to employ as sub-custodians for the Fund's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated on
the Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Upon
receipt of Proper Instructions, the Bank and the Fund may agree to designate
additional foreign banking institutions and foreign securities depositories to
act as Selected Foreign Sub-Custodians hereunder. Upon receipt of Proper
Instructions, the Fund may instruct the Bank to cease the employment of any one
or more such Selected Foreign Sub-Custodians for maintaining custody of the
Fund's assets, and the Bank shall so cease to employ such sub-custodian as soon
as alternate custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be
-------------------------------
agreed upon in writing by the Bank and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign Sub-
Custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Fund, the Fund authorizes the
deposit in Euro-clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Portfolio Securities eligible for deposit therein and the use of Euro-
clear in connection with settlements of purchases and sales of securities and
deliveries and returns of securities, until notified to the contrary pursuant to
subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its
-------------------------
books as belonging to the Fund the Foreign Portfolio Securities held by each
Selected Foreign Sub-Custodian. Each agreement pursuant to which the Bank
employs a foreign banking institution shall require that such institution
establish a custody account for the Bank and hold in that account Foreign
Portfolio Securities and other assets of the Fund, and, in the event that such
institution deposits Foreign Portfolio Securities in a foreign
16
<PAGE>
securities depository, that it shall identify on its books as belonging to the
Bank the securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
--------------------------------------------
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement") shall be substantially in the
form provided to the Fund and shall provide that: (a) the Fund's assets will
not be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration (including,
without limitation, any fees or taxes payable upon transfers or reregistration
of securities); (b) beneficial ownership of the Fund's assets will be freely
transferable without the payment of money or value other than for custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (c) adequate records will be
maintained identifying the assets as belonging to the Bank; (d) officers of or
auditors employed by, or other representatives of the Bank, including to the
extent permitted under applicable law, the independent public accountants for
the Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Bank; and (e)
assets of the Fund held by the Selected Foreign Sub-Custodian will be subject
only to the instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Fund. Upon request
---------------------------------------------
of the Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-Custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time
---------------
to time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by Selected Foreign Sub-Custodians, including but
not limited to an identification of entities having possession of the Foreign
Portfolio Securities and other assets of the Fund and advice of any transfers of
assets into or out of the accounts of such Selected Foreign Sub-Custodians.
(g) Transactions in Foreign Custody Account. Transactions with
---------------------------------------
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio Securities received for
the account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund may be effected in accordance with the customary
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
In connection with any action to be taken with respect to
the Foreign Portfolio Securities held hereunder, including, without limitation,
the exercise of any voting rights, subscription rights, redemption rights,
exchange rights, conversion rights or tender rights, or any other action in
connection with any other right, interest or privilege with respect to such
Securities (collectively, the "Rights"), the Bank shall promptly transmit to the
Fund such information in connection therewith as is made available to the Bank
by the Foreign Sub-Custodian, and shall promptly forward to the applicable
Foreign Sub-Custodian any instructions, forms or certifications with respect to
such Rights, and any
17
<PAGE>
instructions relating to the actions to be taken in connection therewith, as the
Bank shall receive from the Fund pursuant to Proper Instructions.
Notwithstanding the foregoing, absent its own negligence, bad faith and willful
misconduct, the Bank shall have no further duty or obligation with respect to
such Rights, including, without limitation, the determination of whether the
Fund is entitled to participate in such Rights under applicable U.S. and foreign
laws, or the determination of whether any action proposed to be taken with
respect to such Rights by the Fund or by the applicable Foreign Sub-Custodian
will comply with all applicable terms and conditions of any such Rights or any
applicable laws or regulations, or market practices within the market in which
such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign
--------------------------------------------
Sub-Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and the Fund from and against losses,
damages, costs, expenses, liabilities or claims arising out of or in connection
with the institution's performance of such obligations, all as set forth in the
applicable Foreign Sub-Custodian Agreement. The Bank shall grant the Fund a
right of subrogation with regard to the rights of the Bank as they affect the
Fund under any applicable Foreign Sub-Custodian Agreement. The Fund acknowledges
that the Bank, as a participant in Euro-clear, is subject to the Terms and
Conditions Governing the Euro-clear System, a copy of which has been made
available to the Fund. The Fund acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or
assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euro-clear in connection with the Fund's securities and
other assets.
(i) Tax Law. The Bank shall have no responsibility or liability
-------
for any obligations now or hereafter imposed on the Fund or the Bank as
custodian of the Fund by the tax laws of any jurisdiction, and it shall be the
responsibility of the Fund to notify the Bank of the obligations imposed on the
Fund, or its partners or the Bank as the custodian of the Fund by the tax law of
any non-U.S. jurisdiction, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The Selected Foreign Sub-custodian and the Bank shall
use reasonable efforts to assist the Fund with respect to any claim for
exemption or refund under the tax law of jurisdictions for which the Fund has
provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the
---------
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property and shall maintain such insurance
coverage as the Bank believes is prudent and adequate.
14.5 Fees and Expenses of the Bank. The Fund will pay or reimburse
-----------------------------
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder, and for all necessary proper disbursements,
expenses and charges made or incurred by the Bank in the performance of this
Agreement (including any duties listed on any Schedule hereto, if any). For the
services rendered by the Bank hereunder, the Fund will pay to the Bank such
compensation or fees at such rate and at such times as shall be agreed upon in
writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for reasonable expenses incurred in conjunction with
termination of this Agreement, as set forth in Section 16.4 of this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion,
--------------------
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the
18
<PAGE>
Bank to the Fund payable on demand. Such overdraft shall bear interest at the
current rate charged by the Bank for such loans unless the Fund shall provide
the Bank with agreed upon compensating balances. The Fund agrees that the Bank
shall have a continuing lien and security interest to the extent of any
overdraft or indebtedness or to the extent required by law, whichever is
greater, in and to any property at any time held by it for the Fund's benefit or
in which the Fund has an interest and which is then in the Bank's possession or
control (or in the possession or control of any third party acting on the Bank's
behalf). The Fund authorizes the Bank, in the Bank's sole discretion, at any
time to charge any overdraft or indebtedness, together with interest due
thereon, against any balance of account standing to the credit of the
appropriate Portfolio of the Fund on the Bank's books.
15. Limitation of Liability.
-----------------------
15.1 The Bank shall exercise reasonable care and shall act without
negligence, bad faith or willful misconduct in the performance of its duties and
obligations hereunder. Notwithstanding anything in this Agreement to the
contrary, in no event shall the Bank or any of its officers, directors or
employees (collectively, the "Indemnified Parties") be liable to the Fund or any
third party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except to the extent that any Claim results from the negligence,
willful misfeasance, willful misconduct or bad faith of the Bank or any
Indemnified Party. Without limiting the foregoing, neither the Bank nor the
Indemnified Parties shall be liable for, and the Bank and the Indemnified
Parties shall be indemnified against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in
good faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at the
direction of the Fund;
(c) Any act or omission of a Selected Foreign Sub-Custodian to
the extent which such Selected Foreign Sub-Custodian is not liable to the Bank
because such Selected Foreign Sub-Custodian acted in accordance the standards
applicable to custodians in the relevant market;
(d) Any Corporate Action, distribution or other event related to
Portfolio Securities which, at the direction of the Fund, have not been
registered in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for which the Bank
has not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m. on the date
specified as the Response Deadline;
(f) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(g) Information relied on in good faith by the Bank and supplied
by any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Fund or
(ii) the Yield Calculation; or
19
<PAGE>
(h) Acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events beyond the reasonable control of the Bank, except as
results from the Bank's own negligence, bad faith or willful misconduct.
Notwithstanding the foregoing, the Bank has and shall maintain appropriate back-
up and disaster recovery facilities and shall use it best efforts to provide all
required information and services hereunder to the Fund as soon as possible
after any such delay in performance.
15.2 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for any special, consequential or punitive damages hereunder.
16. Termination.
-----------
16.1 The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than ninety days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term or any Renewal Term in the event the other
party violates any material provision of this Agreement, provided that the non-
violating party gives written notice of such violation to the violating party
and the violating party does not cure such violation within 90 days of receipt
of such notice.
(b) If a majority of the Board reasonably determines that the
performance of the Bank under this Agreement has been unsatisfactory, written
notice (the "Notice") of such determination setting forth the reasons for such
determination shall be provided to the Bank. Such determination shall be based
upon such information as the Board in its sole discretion elects to consider,
including the Bank's performance against the "Performance Goals" (as defined
below). In order to be effective, any Notice must be executed by two officers
of the Fund. The Bank shall, within sixty (60) days after receipt of the
Notice, either (i) correct the deficiencies listed in the Notice; or (ii)
renegotiate terms of this Agreement in a form satisfactory to the Fund. If the
conditions of the preceding sentence are not met within such sixty (60) day
period, the Fund may terminate this Agreement without additional action by the
Fund's Board upon an additional sixty (60) days written notice. For the
purposes of this Section, "Performance Goals" shall mean the performance goal
criteria mutually agreed between the parties. The parties agree to develop the
initial Performance Goals no later than June 30, 1999 and agree to periodically
review the Performance Goals for necessary updates due to changes in the nature
or scope of services provided hereunder.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within within the applicable
termination period from the date of delivery of notice of termination the Bank
may, subject to the
20
<PAGE>
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, upon
satisfactory completion of all its duties and obligations hereunder, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of the applicable termination period
after notice of termination has been given, the Fund may furnish the Bank with
an order of the Fund advising that a successor custodian cannot be found willing
and able to act upon reasonable and customary terms and that there has been
submitted to the shareholders of the Fund the question of whether the Fund will
be liquidated or will function without a custodian for the assets of the Fund
held by the Bank. In that event the Bank will deliver the Portfolio Securities
and cash of the Fund held by it, subject as aforesaid, in accordance with one of
such alternatives which may be approved by the requisite vote of shareholders,
upon receipt by the Bank of a copy of the minutes of the meeting of shareholders
at which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
upon satisfactory completion of all its duties and obligations hereunder, the
Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable out-of-
pocket expenses incurred by the Bank in connection with the termination of this
Agreement, such as fees for the transfer of the Funds' assets and records to a
successor custodian and fees for any special processing in connection with such
transfer. The Fund shall not be liable for severance payments, retention bonuses
or termination bonuses to the Bank or its employees in connection with the
termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the written consent of the other party, except as
may be required by applicable law or at the request of a governmental agency
having proper jurisdiction. The parties further agree that a breach of this
provision would irreparably damage the other party and accordingly agree that
each of them is entitled, in addition to all other remedies at law or in equity
to an injunction or injunctions without bond or other security to prevent
breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
The Fulcrum Trust
440 Lincoln Street
Worcester, MA 01653
Attn: President
With a copy to: Counsel
21
<PAGE>
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Geoffrey O'Connell, Director - Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate
in writing.
19. Amendments. This Agreement may not be altered or amended, except by
----------
an instrument in writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
----------------
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. Limitation of Liability. A copy of the Agreement and Declaration of
-----------------------
Trust of the Fund is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed by or
on behalf of the Fund by the Trustees as Trustees or by the officers as officers
and not individually, and that the obligations of this Agreement are not binding
upon any of the Trustees, officers or shareholders of the Fund, but are binding
only upon the assets and property of the Fund. The parties hereto agree that no
shareholder, Trustee or officer of the Fund may be held personally liable or
responsible for any obligation of the Fund arising out of this Agreement.
25. Several Obligations of the Portfolios. This Agreement is an agreement
-------------------------------------
entered into between the Bank and the Fund with respect to each Portfolio. With
respect to any obligation of the Fund on behalf of any Portfolio arising out of
this Agreement, the Bank shall look for payment or satisfaction of such
obligation solely to the assets of the Portfolio to which such obligation
relates as though the Bank had separately contracted with the Fund by separate
written instrument with respect to each Portfolio.
26. Headings. The headings of the paragraphs hereof are included for
--------
convenience of reference only and do not form a part of this Agreement.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
THE FULCRUM TRUST
By: /s/ David J. Mueller
------------------------------
Name: David J. Mueller
Title: Vice President/Treasurer
INVESTORS BANK & TRUST COMPANY
By: /s/ Michael F. Rogers
------------------------------
Name: Michael F. Rogers
Title: Executive Vice President
23
<PAGE>
Appendices
----------
Appendix......................................... Portfolios
Appendix......................................... Fee Schedule
Appendix......................................... Additional Services
24
<PAGE>
Appendix A
----------
Portfolios
. The Value Portfolio
. The Growth Portfolio
. The International Growth Portfolio
. The Strategic Income Portfolio
. The Global Interactive/Telecomm Portfolio
<PAGE>
Appendix B
----------
The Fulcrum Trust
Fee Schedule
================================================================================
CUSTODY, FUND ACCOUNTING, CALCULATION OF N.A.V.,
================================================================================
Fund Administration and Transfer Agency
A. Domestic Custody, Fund Accounting, Calculation of N.A.V. , Fund
----------------------------------------------------------------
Administration and Transfer Agency
----------------------------------
The following fees will apply to all assets for which Investors Bank
provides custody, fund accounting, calculation of N.A.V., fund
administration and transfer agency(up to 14 accounts). This fee does not
include transactions or global custody costs.
Annual Fee
----------
First $2 Billion of Net Assets 3.5 Basis Points
Next $2 Billion of Net Assets 2.5 Basis Points
Assets in excess of $4 Billion 2.0 Basis Points
The yearly minimum fee for each fund is $75,000.
B. Transactions
------------
. DTC/Fed Book Entry $ 8**
. Physical Securities 35
. Options and Futures 18
. GNMA Securities 30
. Principal Paydown 5
. Foreign Currency 18***
. Outgoing Wires 7
. Incoming Wires 5
** Assumes trade information is sent electronically to Investors Bank in the
ISITC/SWIFT format. Manual trades will be billed at $12.00 per trade. There
are no transaction charges for use of the Investors Bank Repo.
***There are no transaction charges for F/X contracts executed by Investors
Bank.
2
<PAGE>
C. Foreign Subcustodian Fees
-------------------------
. Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the attached global custody
fee schedule. Local duties, script fees, registration, exchange fees, and
other market charges are out-of-pocket.
. Investors Bank will require the fund to hold all international assets at
the subcustodian of our choice.
================================================================================
MISCELLANEOUS
================================================================================
A. Out-of-Pocket
-------------
. These charges consist of:
-Reasonable Legal Expenses -Non Standard Extracts
-Printing, Delivery & Postage -Data Transmissions
-Third Party Review -Forms & Supplies
-Extraordinary Travel Expenses -Micro Rental
-Customized Systems Development/Reports -InvestView
-Pricing and Verification services
-Telecommunications
-Financial Statement Printing/Edgarization
-Support Equipment Rental
B. Domestic Balance Credit
-----------------------
. We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
credit is based on collected balances reduced by balances required to
support the activity charges of the accounts. The monthly earnings
allowance is equal to 75% of the 90-day T-bill rate.
C. Foreign Exchange, Cash Management and Securities Lending
--------------------------------------------------------
. This Fee Schedule assumes Investors Bank will perform foreign exchange,
cash management and security lending services for the portfolios.
Securities lending revenue is split with the portfolios and Investors
Bank on a 60/40% basis: 60% going to the portfolio.
3
<PAGE>
D. Payment
-------
. The above fees will be charged against the fund's custodian checking
account five business days after the invoice is mailed.
E. Systems
-------
. The details of any systems work will be determined after a thorough
business analysis. System's work will be billed on a time and material
basis. Investors Bank provides an allowance of 10 systems hours for data
extract set up and reporting extract set up. Additional hours will be
billed on a time and material basis.
F. Term
----
. The term of this Fee Schedule shall be three years commencing upon the
date of conversion of the Company's assets to the Bank (the "Initial
term").
* This fee schedule is contingent on Investors Bank providing custody and
related services for the Allmerica Investment Trust and Allmerica Separate
Accounts.
* This fee schedule is confidential between Investors Bank and the Fund and
shall not be disclosed to any third party without the written consent of both
parties, except the Fund may include this fee schedule in filings with the
Securities and Exchange Commission as required.
4
<PAGE>
Global Fee Schedule
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
COUNTRY BP CHARGE TRADE CHARGE
- -----------------------------------------------------------------------------
<S> <C> <C>
Argentina * 17.00 $ 75.00
Australia 5.00 $ 60.00
Austria 7.00 $ 60.00
Bangladesh 41.00 $ 150.00
Belgium 7.00 $ 60.00
Bahrain 41.00 $ 140.00
Botswana 50.00 $ 175.00
Brazil ** 29.00 $ 80.00
Bulgaria 30.00 $ 75.00
Canada 5.00 $ 30.00
Chile ** 45.00 $ 100.00
China 20.00 $ 75.00
Colombia *** 45.00 $ 140.00
Costa Rica 45.00 $ 100.00
Croatia 45.00 $ 125.00
Cyprus 50.00 $ 150.00
Czech Republic 17.00 $ 75.00
Denmark 5.00 $ 60.00
Ecuador 45.00 $ 100.00
Egypt 41.00 $ 100.00
Estonia 30.00 $ 125.00
Euroclear Internal 5.00 $ 20.00
Euroclear Cross Border 5.00 $ 60.00
Finland 7.00 $ 70.00
France 5.00 $ 60.00
Germany 5.00 $ 30.00
Ghana 50.00 $ 200.00
Greece 45.00 $ 130.00
Greece Debt 20.00 $ 130.00
Hong Kong 10.00 $ 65.00
Hungary 25.00 $ 100.00
India - Physical 40.00 $ 600.00
India - Dematerialized 15.00 $ 350.00
Indonesia 13.00 $ 65.00
Ireland 7.00 $ 60.00
Israel 20.00 $ 60.00
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
COUNTRY BP CHARGE TRADE CHARGE
- -----------------------------------------------------------------------------
<S> <C> <C>
Italy 5.00 $ 50.00
Japan 5.00 $ 30.00
Jordan 41.00 $ 120.00
Kazakhstan***** 45.00 $ 150.00
Kenya 50.00 $ 200.00
Korea 13.00 $ 65.00
Latvia 30.00 $ 125.00
Lebanon 41.00 $ 140.00
Lithuania T Bills 25.00 $ 75.00
Luxembourg 7.00 $ 60.00
Malaysia 10.00 $ 70.00
Mauritius 41.00 $ 140.00
Mexico 10.00 $ 40.00
Morocco 40.00 $ 150.00
Namibia 50.00 $ 200.00
Netherlands 5.00 $ 40.00
New Zealand 5.00 $ 60.00
Norway 7.00 $ 90.00
Oman 41.00 $ 140.00
Pakistan 41.00 $ 140.00
Peru 35.00 $ 100.00
Philippines 13.00 $ 65.00
Poland 30.00 $ 100.00
Poland T Bills 15.00 $ 100.00
Portugal 15.00 $ 125.00
Romania 45.00 $ 125.00
Russia Equities 41.00 $ 250.00
Russia Min Fins 35.00 $ 140.00
Singapore 10.00 $ 65.00
Slovak Republic 20.00 $ 75.00
Slovenia 41.00 $ 100.00
South Africa 7.00 $ 40.00
Spain Eq & Corp Debt 7.00 $ 60.00
Spain Gvt Debt 5.00 $ 60.00
Sri Lanka 13.00 $ 65.00
Swaziland 50.00 $ 200.00
Sweden 5.00 $ 40.00
Switzerland 5.00 $ 60.00
Taiwan 13.00 $ 65.00
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
COUNTRY BP CHARGE TRADE CHARGE
- -----------------------------------------------------------------------------
<S> <C> <C>
Thailand 10.00 $ 65.00
Turkey 15.00 $ 100.00
UK 5.00 $ 50.00
Uruguay 50.00 $ 150.00
Venezuela ** 45.00 $ 140.00
Zambia 50.00 $ 200.00
Zimbabwe 50.00 $ 175.00
</TABLE>
Euroclear charges apply to only continental European countries
* Bonds billed at Residual Value
** Local Administrator Fees included in Custody fee, other monthly minimums
apply
*** 20 BP Local Administration charge applied to month end value, minimum $400,
maximum $4000
***** Transaction fees are charged for corporate entitlements, Dep fees as
actuals All Out-of Pocket Charges are passed through as actuals in all markets
7
<PAGE>
Appendix C
----------
Additional Services
None.
8
<PAGE>
Addendum to
------------
Appendix B
to Custodian Agreement dated April 1, 1999
------------------------------------------
The Fulcrum Trust
Fee Schedule
================================================================================
CUSTODY, FUND ACCOUNTING, CALCULATION OF N.A.V.,
FUND ADMINISTRATION AND TRANSFER AGENCY
================================================================================
A. Domestic Custody, Fund Accounting, Calculation of N.A.V., Fund
---------------------------------------------------------------
Administration and Transfer Agency
----------------------------------
This addendum is to clarify the amount of fees set forth in the Fee Schedule
that will apply to fund administration services provided by Investors Bank. Of
the fees set forth under the heading "Domestic Custody, Fund Accounting,
Calculation of N.A.V., Fund Administration and Transfer Agency" (including any
minimum fees charged) $34,000 annually per portfolio will be charged on account
of administrative services provided by Investors Bank. Such amounts do not
constitute fees in addition to those set forth in the Fee Schedule referenced
above and will not be charged to the Fund but rather will be charged and billed
on a monthly basis directly to ALLMERICA FINANCIAL INVESTMENT MANAGEMENT
SERVICES, INC., a Massachusetts corporation ("AFIMS"), as investment manager for
the Fund. AFIMS hereby agrees to pay all such amounts billed within 30 days of
its receipt of an invoice for such amounts from Investors Bank.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed and delivered by their duly authorized officers as of April 1, 1999.
THE FULCRUM TRUST
By: /s/ Stephen W. Bright
-------------------------------
Name: Stephen W. Bright
Title: Vice President
ALLMERICA FINANCIAL INVESTMENT
MANAGEMENT SERVICES, INC.
By: /s/ John P. Kavanaugh
-------------------------------
Name: John P. Kavanaugh
Title: Vice President
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
-------------------------------
Name: Andrew M. Nesvet
Title: Senior Director
9
<PAGE>
Exhibit 8 (a)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of April, 1999 by and between THE FULCRUM
TRUST, a Massachusetts business trust (the "Company"), and INVESTORS BANK &
TRUST COMPANY, a Massachusetts trust company (the "Bank").
WHEREAS, the Company desires to appoint the Bank as its transfer agent and
dividend disbursing agent, and the Bank desires to accept such appointment;
WHEREAS, the Bank is duly registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended, (the "1934
Act");
WHEREAS, the Company is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets;
WHEREAS, the Company offers shares in the series listed on Appendix A
----------
hereto (such series, together with all other series subsequently established by
the Company and made subject to this Agreement in accordance with Section 17,
being herein referred to as the "Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Company and the Bank agree as follows:
1. Terms of Appointment; Duties of the Bank.
----------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement, the
Company on behalf of the Funds hereby employs and appoints the Bank to act, and
the Bank agrees to act, as transfer agent for each of the Fund(s)' authorized
and issued shares of beneficial interest ("Shares"), dividend disbursing agent
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of the Company ("Shareholders") and set out in the
currently effective prospectus and statement of additional information, as each
may be amended from time to time, (the "Prospectus") of the Company, including
without limitation any periodic investment plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In connection with procedures established from time to time by
agreement between the Company and the Bank, the Bank shall:
(i) Receive for acceptance orders for the purchase of Shares
and promptly deliver payment and appropriate documentation therefor to the
custodian of the Company appointed by the Board of Trustees of the Company (the
"Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
<PAGE>
(iv) At the appropriate time and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Company on behalf of a Fund;
(vii) Create and maintain all necessary records including those
specified in Article 10 hereof, in accordance with all applicable laws, rules
and regulations, including but not limited to records required by Section 31(a)
of the Investment Company Act of 1940, as amended (the "1940 Act"), and those
records pertaining to the various functions performed by it hereunder. All
records shall be available for inspection and use by the Company. Where
applicable, such records shall be maintained by the Bank for the periods and in
the places required by Rule 31a-2 under the 1940 Act;
(viii) Make available during regular business hours all records
and other data created and maintained pursuant to this Agreement for reasonable
audit and inspection by the Company, or any person retained by the Company. Upon
reasonable notice by the Company, the Bank shall make available during regular
business hours its facilities and premises employed in connection with its
performance of this Agreement for reasonable visitation by the Company, or any
person retained by the Company;
(ix) At the expense of and at the request of the Company,
maintain an adequate supply of blank share certificates for each Fund providing
for the issuance of certificates to meet the Bank's requirements therefor. Such
share certificates shall be properly signed by facsimile. The Company agrees
that, notwithstanding the death, resignation, or removal of any officer of the
Company whose signature appears on such certificates, the Bank may continue to
countersign certificates which bear such signatures until otherwise directed by
the Company. Share certificates may be issued and accounted for entirely by the
Bank and do not require any third party registrar or other endorsing party;
(x) Issue replacement share certificates in lieu of
certificates which have been lost, stolen, mutilated or destroyed, without any
further action by the Board of Trustees or any officer of the Company, upon
receipt by the Bank of properly executed affidavits and lost certificate bonds,
in form satisfactory to the Bank with the Company and the Bank as obligees under
the bond. At the discretion of the Bank, and at its sole risk, the Bank may
issue replacement certificates without requiring the affidavits and lost
certificate bonds described above and the Company agrees to indemnify the Bank
against any and all losses or claims which may arise by reason of the issuance
of such new certificates in the place of the ones allegedly lost, stolen or
destroyed; and
(xi) Record the issuance of Shares of the Company and maintain,
pursuant to Rule 17Ad-10(e) under the 1934 Act, a record of the total number of
Shares of the Company which are authorized, based upon data provided to it by
the Company, and issued and outstanding. The Bank shall also provide the Company
on a regular basis with the total number of Shares which are authorized and
issued and outstanding and shall have no obligation, when recording the issuance
of Shares, to monitor the issuance of such Shares or to take cognizance of any
laws relating to the issue or sale of such Shares, which functions shall be the
responsibility of the Company.
2
<PAGE>
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a) or in any Schedule hereto, the Bank shall: (i) perform all
of the customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program); including but not limited to maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on all accounts, including nonresident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, responding to Shareholder telephone calls and Shareholder
correspondence, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information; and (ii) if requested by the Company,
provide a system which will enable the Company to monitor the total number of
shares sold in each State. If the Company requests assistance with respect to
any state securities law issues (blue sky) or state-by-state tracking, the
Company shall (i) identify to the Bank in writing those transactions and assets
to be treated as exempt from blue sky reporting for each State and (ii) verify
the establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each State. If the
Company requests assistance with respect to any state securities law issues
(blue sky) or state-by-state tracking, the responsibility of the Bank for a
Fund's blue sky registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by such Fund(s) and
the reporting of such transactions to the Fund(s) as provided above.
(c) Additionally, the Bank shall utilize a system to identify all
share transactions which involve purchase and redemption orders that are
processed at a time other than the time of the computation of net asset value
per share next computed after receipt of such orders, and shall compute the net
effect upon the Fund(s) of such transactions so identified on a daily and
cumulative basis.
2. Sale of Company Shares.
----------------------
2.1 Whenever the Company shall sell or cause to be sold any Shares of a
Fund, the Company shall deliver or cause to be delivered to the Bank a document
duly specifying: (i) the name of the Fund whose Shares were sold; (ii) the
number of Shares sold, trade date, and price; (iii) the amount of money to be
delivered to the Custodian for the sale of such Shares and specifically
allocated to such Fund; and (iv) in the case of a new account, a new account
application or sufficient information to establish an account.
2.2 The Bank will, upon receipt by it of a check or other payment
identified by it as an investment in Shares of one of the Funds and drawn or
endorsed to the Bank as agent for, or identified as being for the account of,
one of the Funds, promptly deposit such check or other payment to the
appropriate account postings necessary to reflect the investment. The Bank will
notify the Company, or its designee, and the Custodian of all purchases and
related account adjustments.
2.3 Under procedures as established by mutual agreement between the
Company and the Bank, the Bank shall issue to the purchaser or its authorized
agent such Shares, computed to the nearest three decimal points, as he is
entitled to receive, based on the appropriate net asset value of the Funds'
Shares, determined in accordance with the prospectus and any applicable federal
law or regulation. In issuing Shares to a purchaser or its authorized agent, the
Bank shall be entitled to rely upon the latest
3
<PAGE>
directions, if any, previously received by the Bank from the purchaser or its
authorized agent concerning the delivery of such Shares.
2.4 The Bank shall not be required to issue any Shares of the Company
where it has received a written instruction from the Company or written
notification from any appropriate federal or state authority that the sale of
the Shares of the Fund(s) in question has been suspended or discontinued, and
the Bank shall be entitled to rely upon such written instructions or written
notification.
2.5 Upon the issuance of any Shares of any Fund(s) in accordance with
foregoing provisions of this Section, the Bank shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by the
Company in connection with such issuance.
2.6 The Bank may, by written notice to the Company, establish such
additional rules and regulations governing the transfer or registration of
Shares as it may deem advisable and consistent with such rules and regulations
generally adopted by transfer agents, or with the written consent of the
Company, any other rules and regulations.
3. Returned Checks. In the event that any check or other order for the
---------------
transfer of money is returned unpaid for any reason, the Bank will take such
steps as the Bank may, in its discretion, deem appropriate to protect the
Company from financial loss or as the Company or its designee may instruct.
Provided that the standard procedures, as agreed upon from time to time, between
the Company and the Bank, regarding purchases and redemptions of Shares, are
adhered to by the Bank, and absent any negligence, bad faith or willful
misconduct by the Bank, the Bank shall not be liable for any loss suffered by a
Fund as a result of returned or unpaid purchase or redemption transactions.
Reasonable legal or other expenses incurred to collect amounts owed to a Fund as
a consequence of returned or unpaid purchase or redemption transactions shall be
an expense of that Fund.
4. Redemptions. Shares of any Fund may be redeemed in accordance with the
-----------
procedures set forth in the Prospectus of the Company and the Bank will duly
process all redemption requests.
5. Transfers and Exchanges. The Bank is authorized to review and process
-----------------------
transfers of Shares of each Fund, exchanges between Funds on the records of the
Funds maintained by the Bank, and exchanges between the Company and any other
entity as may be permitted by the Prospectus of the Company. If Shares to be
transferred are represented by outstanding certificates, the Bank will, upon
surrender to it of the certificates in proper form for transfer, and upon
cancellation thereof, countersign and issue new certificates for a like number
of Shares and deliver the same. If the Shares to be transferred are not
represented by outstanding certificates, the Bank will, upon an order therefor
by or on behalf of the registered holder thereof in proper form, credit the same
to the transferee on its books. If Shares are to be exchanged for Shares of
another Fund, the Bank will process such exchange in the same manner as a
redemption and sale of Shares, except that it may in its discretion waive
requirements for information and documentation.
6. Right to Seek Assurances. The Bank reserves the right to refuse to
------------------------
transfer or redeem Shares until it is satisfied that the requested transfer or
redemption is legally authorized, and it shall incur no liability for the
refusal, absent any negligence, bad faith or willful misconduct by the Bank, to
make transfers or redemptions which the Bank, in its judgment, deems improper or
unauthorized, or until it is satisfied that there is no basis for any claims
adverse to such transfer or redemption. The Bank may, in effecting transfers,
rely upon the provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time,
4
<PAGE>
which in the opinion of legal counsel for the Company or the Bank's own legal
counsel, do not require certain documents in connection with the transfer or
redemption of Shares of any Fund.
7. Distributions.
-------------
7.1 The Company will promptly notify the Bank of the declaration of any
dividend or distribution. The Company shall furnish to the Bank a resolution of
the Board of Trustees of the Company, certified by the Secretary (a
"Certificate"): (i) authorizing the declaration of dividends on a specified
periodic basis and authorizing the Bank to rely on oral instructions or a
Certificate specifying the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
Shareholders entitled to payment shall be determined and the amount payable per
share to Shareholders of record as of such record date and the total amount
payable to the Bank on the payment date; or (ii) setting forth the date of the
declaration of any dividend or distribution by a Fund, the date of payment
thereof, the record date as of which Shareholders entitled to payment shall be
determined, and the amount payable per share to the Shareholders of record as of
that date and the total amount payable to the Bank on the payment date.
7.2 The Bank, on behalf of the Company, shall instruct the Custodian to
place in a dividend disbursing account funds equal to the cash amount of any
dividend or distribution to be paid out. The Bank will calculate, prepare and
mail checks to (at the address as it appears on the records of the Bank), or
(where appropriate) credit such dividend or distribution to the account of, Fund
Shareholders, and maintain and safeguard all underlying records.
7.3 The Bank will replace lost checks at its discretion and in conformity
with regular business practices.
7.4 The Bank will maintain all records necessary to reflect the crediting
of dividends which are reinvested in Shares of the Company, including without
limitation daily dividends, if any.
7.5 Absent any negligence, bad faith or willful misconduct by the Bank,
The Bank shall not be liable for any improper payments made in accordance with a
resolution of the Board of Trustees of the Company.
7.6 If the Bank shall not receive from the Custodian sufficient cash to
make payment to all Shareholders of the Company as of the record date, the Bank
shall, upon notifying the Company, withhold payment to all Shareholders of
record as of the record date until such sufficient cash is provided to the Bank
and, absent any negligence, bad faith or willful misconduct by the Bank, shall
not be liable for any claim arising out of such withholding.
8. Other Duties. In addition to the duties expressly provided for herein, the
------------
Bank shall perform such other duties and functions and shall be paid such
amounts therefor as may from time to time be agreed to by the parties in
writing.
9. Taxes. It is understood that the Bank shall file such appropriate
-----
information returns concerning the payment of dividends and capital gain
distributions and tax withholding with the proper Federal, State and local
authorities as are required by law to be filed by the Company and shall withhold
such sums as are required to be withheld by applicable law.
10. Books and Records.
-----------------
5
<PAGE>
10.1 The Bank shall maintain confidential records showing for each
Shareholder's account the following: (i) names, addresses and tax identification
numbers; (ii) numbers of Shares held; (iii) historical information (as available
from prior transfer agents) regarding the account of each Shareholder, including
dividends paid and date and price of all transactions on a Shareholder's
account; (iv) any stop or restraining order placed against a Shareholder's
account; (v) information with respect to withholdings; (vi) any capital gain or
dividend reinvestment order, plan application, dividend address and
correspondence relating to the current maintenance of a Shareholder's account;
(vii) certificate numbers and denominations for any Shareholders holding
certificates; (viii) any information required in order for the Bank to perform
the calculations contemplated or required by this Agreement; and (ix) such other
information and data as may be required by applicable law.
10.2 Any records required to be maintained by Rule 31a-1 under the 1940
Act will be preserved for the periods prescribed in Rule 31a-2 under the 1940
Act. Such records may be inspected by the Company during regular business hours
upon reasonable notice. The Bank may, at its option at any time, and shall
forthwith upon the Company's demand, turn over to the Company and cease to
retain in the Bank's files, records and documents created and maintained by the
Bank in performance of its service or for its protection. At the end of the six-
year retention period, such documents will either be turned over to the Company,
or destroyed in accordance with the Company's authorization.
10.3 Procedures applicable to the services to be performed hereunder may
be established from time to time by agreement between the Fund(s) and the Bank.
The Bank shall have the right to utilize any shareholder accounting and
recordkeeping systems which, in its reasonable opinion, qualifies to perform any
services to be performed hereunder. The Bank shall keep records relating to the
services performed hereunder, in the form and manner as it may deem reasonably
advisable provided that the term and manner are permissible under applicable
law, including the 1940 Act.
11. Fees and Expenses.
-----------------
11.1 For performance by the Bank pursuant to this Agreement, the Fund(s)
agree to pay the Bank an annual maintenance fee for each Shareholder account as
set out in the initial fee schedule attached as Appendix B hereto. Such fees
----------
and out-of-pocket expenses and advances identified under Section 11.2 below may
be changed from time to time subject to mutual written agreement between the
Fund(s) and the Bank.
11.2 In addition to the fee paid under Section 11.1 above, the Fund(s)
agree to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In
addition, any other reasonable expenses incurred by the Bank at the request or
with the consent of the Fund(s) including, without limitation, any equipment or
supplies which the Company specifically orders or requires the Bank to purchase,
will be reimbursed by the Fund(s).
11.3 The Fund(s) agree to pay all fees and reimbursable expenses within
thirty days following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Fund(s) at least seven
(7) days prior to the mailing date of such materials. Any waiver or extension
by the Bank of the thirty and seven day time periods enumerated in this section
11.3 shall not constitute a dismissal of any monies due under this Agreement nor
shall such waiver or extension apply to any future monies due to the Bank
hereunder.
6
<PAGE>
12. Representations and Warranties of the Bank.
------------------------------------------
The Bank represents and warrants to the Company that:
12.1 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
12.2 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
12.3 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
12.4 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
12.5 It is duly registered as a transfer agent as provided in Section
17A(c) of the 1934 Act.
13. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to the Bank that:
13.1 It is a business trust duly organized and existing and in good
standing under the laws of the State of its organization as set forth in the
preamble hereto.
13.2 It is empowered under applicable laws and by its charter documents
and by-laws to enter into and perform this Agreement.
13.3 All proceedings required by said charter documents and by-laws have
been taken to authorize it to enter into and perform this Agreement.
13.4 It is a open-end investment company registered under the 1940 Act.
13.5 A registration statement on Form N-1A (including a prospectus and
statement of additional information) under the Securities Act of 1933 and the
1940 Act is currently effective and will remain effective as long as the Company
publicly offers its shares.
13.6 When Shares are hereafter issued in accordance with the terms of the
Prospectus, such Shares shall be validly issued, fully paid and nonassessable by
the Fund(s).
14. Indemnification.
---------------
14.1 The Bank shall exercise reasonable care and shall act without
negligence, bad faith or willful misconduct in the performance of its duties and
obligations hereunder. Notwithstanding anything in this Agreement to the
contrary, in no event shall the Bank or any of its officers, directors or
employees (collectively, the "Indemnified Parties") be liable to the Fund or any
third party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except to the
7
<PAGE>
extent that any Claim results from the negligence, willful misfeasance, willful
misconduct or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of:
(a) Any actions taken or omitted to be taken by the Bank or its
agents or subcontractors in good faith in reliance on, or use by the Bank or its
agents or subcontractors of, information, records and documents which (i) are
received by the Bank or its agents or subcontractors and furnished to such party
by or on behalf of the Fund(s), (ii) have been prepared and/or maintained by the
Fund(s) or any other person or firm on behalf of the Fund(s), or (iii) were
received by the Bank or its agents or subcontractors from a prior transfer
agent.
(b) Any action taken or omitted to be taken by the Bank in good faith
reliance upon any law, act, regulation (a "Regulation") or interpretation of a
Regulation by reputable legal counsel even though such Regulation may thereafter
have been altered, changed, amended or repealed.
(c) The Fund(s)' refusal or failure to comply with the terms of this
Agreement, or which arise out of the Funds' lack of good faith, negligence or
willful misconduct or which arise out of the material breach of any
representation or warranty of the Fund(s) hereunder.
(d) The reasonable reliance on, or the carrying out by the Bank or
its agents or subcontractors of any instructions or requests, whether written or
oral, of the Fund(s).
(e) The offer or sale of Shares by the Company in violation of (i)
any requirement under the federal securities laws or regulations; (ii) any
requirement under the securities laws or regulations of any state; or (iii) any
stop order or other determination or ruling by any federal or state agency with
respect to the offer or sale of such Shares.
(f) Acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events beyond the reasonable control of the Bank, except as
results from the Bank's own negligence, bad faith or willful misconduct.
Notwithstanding the foregoing, the Bank has and shall maintain appropriate back-
up and disaster recovery facilities and shall use it best efforts to provide all
required information and services hereunder to the Fund as soon as possible
after any such delay in performance.
14.2 At any time the Bank may apply to any officer of the Company for
instructions, and may consult with legal counsel of the Bank or the Company with
respect to any matter arising in connection with the services to be performed by
the Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Company for any action taken
or omitted by it in reasonable reliance upon such instructions or upon the
opinion of such counsel except for a knowing violation of law. The Bank, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund(s), reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided to the Bank or
its agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund(s), and the Bank, its agents and
subcontractors shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund(s). The Bank,
its agents and subcontractors shall also be
8
<PAGE>
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of an officer of the
Company, and one proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
14.3 The Bank agrees to indemnify and hold the Company and its Trustees,
officers and employees harmless from and against any and all losses, damages,
liabilities, claims, costs and expenses, including legal fees and expenses,
resulting from any claim, demand, action or suit arising out of the Bank's
negligence, willful misfeasance, or bad faith in the performance of its
obligations and duties under this Agreement.
14.4 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the Company or any
third party for any special, consequential or punitive damages hereunder.
15. Covenants of the Company and the Bank.
-------------------------------------
15.1 The Company shall promptly furnish to the Bank the following (the
Company need not furnish information that the Bank already maintains based on
the Bank's previous or current work for the Company):
(a) A certified copy of the resolution of the Trustees of the Company
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the declaration of trust and by-laws of the Company and
all amendments thereto.
(c) Copies of each vote of the Trustees designating authorized
persons to give instructions to the Bank, and a Certificate providing specimen
signatures for such authorized persons.
(d) Certificates as to any change in any officer or Trustee of the
Company.
(e) If applicable a specimen of the certificate of Shares in each
Fund of the Company in the form approved by the Trustees, with a Certificate as
to such approval.
(f) Specimens of all new certificates for Shares, accompanied by the
Trustees' resolutions approving such forms.
(g) All account application forms and other documents relating to
shareholder accounts or relating to any plan, program or service offered by the
Company.
(h) A list of all Shareholders of the Fund(s) with the name, address
and tax identification number of each Shareholder, and the number of Shares of
the Fund(s) held by each, certificate numbers and denominations (if any
certificates have been issued), lists of any account against which stops have
been placed, together with the reasons for said stops, and the number of Shares
redeemed by the Fund(s).
(i) An opinion of counsel for the Company with respect to the
validity of the Shares and the status of such Shares under the Securities Act of
1933.
9
<PAGE>
(j) Copies of the Fund(s)' most recent post-effective amendment to
the registration statement on Form N-1A and all post-effective amendments
thereto.
(k) Such other certificates, documents or opinions as the Bank may
deem necessary or appropriate for the Bank in the proper performance of its
duties hereunder.
15.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Company for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
15.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act and the Rules thereunder, the Bank agrees
that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the confidential property of
the Company and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered to the Company on and in
accordance with its request.
15.4 The Bank and the Company agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
15.5 In case of any requests or demands for the inspection of the
Shareholder records of the Company, the Bank will endeavor to notify the Company
and to secure instructions from an authorized officer of the Company as to such
request or demand. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that it
may be subject to enforcement or other action by any court or regulatory body
for the failure to exhibit the Shareholder records to such person.
16. Term of Agreement.
-----------------
16.1 The term of this Agreement shall be three years commencing upon the
date hereof (the "Initial Term"), unless earlier terminated as provided herein.
After the expiration of the Initial Term, the term of this Agreement shall
automatically renew for successive one-year terms (each a "Renewal Term") unless
notice of non-renewal is delivered by the non-renewing party to the other party
no later than ninety days prior to the expiration of the Initial Term or any
Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term or any Renewal Term in the event the other party
violates any material provision of this Agreement, provided that the non-
violating party gives written notice of such violation to the violating party
and the violating party does not cure such violation within 90 days of receipt
of such notice.
(b) If a majority of the Board of Trustees reasonably determines that
the performance of the Bank under this Agreement has been unsatisfactory,
written notice (the "Notice") of such determination setting forth the reasons
for such determination shall be provided to the Bank. Such determination shall
be based upon such information as the Board in its sole discretion elects to
consider, including the Bank's performance against the "Performance Goals" (as
defined below). In order to be effective, any Notice must be executed by two
officers of the Company. The Bank shall, within sixty
10
<PAGE>
(60) days after receipt of the Notice, either (i) correct the deficiencies
listed in the Notice; or (ii) renegotiate terms of this Agreement in a form
satisfactory to the Company. If the conditions of the preceding sentence are not
met within such sixty (60) day period, the Fund may terminate this Agreement
without additional action by the Fund's Board of Trustees upon an additional
sixty (60) days written notice. For the purposes of this Section, "Performance
Goals" shall mean the performance goal criteria mutually agreed between the
parties. The parties agree to develop the initial Performance Goals no later
than June 30, 1999 and agree to periodically review the Performance Goals for
necessary updates due to changes in the nature or scope of services provided
hereunder.
16.2 The Company shall reimburse the Bank for any reasonable out-of-pocket
expenses incurred by the Bank in connection with the termination of this
Agreement, such as fees for any special processing in connection with such
transfer. The Company shall not be liable for severance payments, retention
bonuses or termination bonuses to the Bank or its employees in connection with
the termination of this Agreement.
16.3 At any time after the termination of this Agreement, the Company may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as transfer agent.
17. Additional Funds. In the event that the Company establishes one or more
----------------
series of Shares in addition to the series listed on Appendix A hereto with
----------
respect to which it desires to have the Bank render services as transfer agent
under the terms hereof, it shall so notify the Bank in writing, and if the Bank
agrees in writing to provide such services, such series of Shares shall become
a Fund hereunder and Appendix A shall be appropriately amended.
----------
18. Assignment.
----------
18.1 Except as provided in Section 18.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
18.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
18.3 The Bank may, without further consent on the part of the Company,
subcontract for the performance of any of the services to be provided hereunder
to third parties, including any affiliate of the Bank, provided that the Bank
shall remain liable hereunder for any acts or omissions of any subcontractor as
if performed by the Bank.
19. Amendment. This Agreement may be amended or modified only by a written
---------
agreement executed by both parties.
20. Governing Law. This Agreement shall be construed and the provisions
-------------
thereof interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without regard to its conflict of laws provisions.
21. Merger of Agreement and Severability.
------------------------------------
11
<PAGE>
21.1 This Agreement constitutes the entire agreement between the parties
hereto regarding transfer agency and related services, and supersedes any prior
agreement with respect to the subject hereof whether oral or written.
21.2 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
21.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall together,
constitute only one instrument.
22. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below:
For the Fund(s):
The Fulcrum Trust
440 Lincoln Street
Worcester, MA 01653
Attn: President
With a copy to: Counsel
For the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Geoffrey O'Connell, Director, Client Management
With a copy to: John E. Henry, General Counsel
23. Limitation of Liability. A copy of the Agreement and Declaration of
-----------------------
Trust of the Company is on file with the Secretary of State of the Commonwealth
of Massachusetts, and notice is hereby given that this Agreement is executed by
or on behalf of the Company by the Trustees as Trustees or by the officers as
officers and not individually, and that the obligations of this Agreement are
not binding upon any of the Trustees, officers or shareholders of the Company,
but are binding only upon the assets and property of the Company. The parties
hereto agree that no shareholder, Trustee or officer of the Company may be held
personally liable or responsible for any obligation of the Company arising out
of this Agreement.
25. Several Obligations of the Funds. This Agreement is an agreement
--------------------------------
entered into between the Bank and the Company with respect to each Fund. With
respect to any obligation of the Company on behalf of any Fund arising out of
this Agreement, the Bank shall look for payment or satisfaction of such
obligation solely to the assets of the Fund to which such obligation relates as
though the Bank had separately contracted with the Company by separate written
instrument with respect to each Fund.
26. Headings. The headings of the paragraphs hereof are included for
--------
convenience of reference only and do not form a part of this Agreement.
[Remainder of Page Intentionally Left Blank]
12
<PAGE>
[INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and the year first above written.
THE FULCRUM TRUST
By: /s/ Stephen W. Bright
------------------------
Name: Stephen W. Bright
------------------------
Title: Vice President
------------------------
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
------------------------
Name: Andrew M. Nesvet
------------------------
Title: Senior Director
------------------------
14
<PAGE>
Appendices
----------
Appendix A ............................... Series or Funds
Appendix B ............................... Fee Schedule
<PAGE>
Appendix A
----------
Portfolios
. The Value Portfolio
. The Growth Portfolio
. The International Growth Portfolio
. The Strategic Income Portfolio
. The Global Interactive/Telecomm Portfolio
<PAGE>
Appendix B
----------
The Fulcrum Trust
Fee Schedule
==========================================================================
CUSTODY, FUND ACCOUNTING, CALCULATION OF N.A.V., FUND ADMINISTRATION AND
TRANSFER AGENCY
==========================================================================
A. Domestic Custody, Fund Accounting, Calculation of N.A.V. , Fund
----------------------------------------------------------------
Administration and Transfer Agency
----------------------------------
The following fees will apply to all assets for which Investors Bank
provides custody, fund accounting, calculation of N.A.V., fund
administration and transfer agency (up to 14 accounts). This fee does not
include transactions or global custody costs.
Annual Fee
----------
First $2 Billion of Net Assets 3.5 Basis Points
Next $2 Billion of Net Assets 2.5 Basis Points
Assets in excess of $4 Billion 2.0 Basis Points
The yearly minimum fee for each fund is $75,000.
B. Transactions
. DTC/Fed Book Entry $ 8**
. Physical Securities 35
. Options and Futures 18
. GNMA Securities 30
. Principal Paydown 5
. Foreign Currency 18***
. Outgoing Wires 7
. Incoming Wires 5
** Assumes trade information is sent electronically to Investors Bank in the
ISITC/SWIFT format. Manual trades will be billed at $12.00 per trade. There
are no transaction charges for use of the Investors Bank Repo.
***There are no transaction charges for F/X contracts executed by Investors
Bank.
<PAGE>
C. Foreign Subcustodian Fees
-------------------------
. Incremental basis point and transaction fees will be charged for
all foreign assets for which we are custodian. The asset based fees
and transaction fees vary by country, based upon the attached global
custody fee schedule. Local duties, script fees, registration,
exchange fees, and other market charges are out-of-pocket.
. Investors Bank will require the fund to hold all international
assets at the subcustodian of our choice.
============================================================================
MISCELLANEOUS
============================================================================
A. Out-of-Pocket
-------------
. These charges consist of:
-Reasonable Legal Expenses -Non Standard Extracts
-Printing, Delivery & Postage -Data Transmissions
-Third Party Review -Forms & Supplies
-Extraordinary Travel Expenses -Micro Rental
-Customized Systems Development/Reports -InvestView
-Pricing and Verification services
-Telecommunications
-Financial Statement Printing/Edgarization
-Support Equipment Rental
B. Domestic Balance Credit
-----------------------
. We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
credit is based on collected balances reduced by balances required to
support the activity charges of the accounts. The monthly earnings
allowance is equal to 75% of the 90-day T-bill rate.
C. Foreign Exchange, Cash Management and Securities Lending
--------------------------------------------------------
. This Fee Schedule assumes Investors Bank will perform foreign exchange,
cash management and security lending services for the portfolios.
Securities lending revenue is split with the portfolios and Investors
Bank on a 60/40% basis: 60% going to the portfolio.
<PAGE>
D. Payment
-------
. The above fees will be charged against the fund's custodian checking
account five business days after the invoice is mailed.
E. Systems
-------
. The details of any systems work will be determined after a thorough
business analysis. System's work will be billed on a time and material
basis. Investors Bank provides an allowance of 10 systems hours for data
extract set up and reporting extract set up. Additional hours will be
billed on a time and material basis.
F. Term
----
. The term of this Fee Schedule shall be three years commencing upon the
date of conversion of the Company's assets to the Bank (the "Initial
term").
* This fee schedule is contingent on Investors Bank providing custody and
related services for the Allmerica Investment Trust and Allmerica Separate
Accounts.
* This fee schedule is confidential between Investors Bank and the Fund and
shall not be disclosed to any third party without the written consent of both
parties, except the Fund may include this fee schedule in filings with the
Securities and Exchange Commission as required.
<PAGE>
Exhibit 8(b)
ADMINISTRATION SERVICES AGREEMENT
between
ALLMERICA FINANCIAL INVESTMENT MANAGEMENT SERVICES, INC.,
THE FULCRUM TRUST
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
ADMINISTRATION SERVICES AGREEMENT
AGREEMENT made as of April 1, 1999 by and among ALLMERICA FINANCIAL
INVESTMENT MANAGEMENT SERVICES, INC., a Massachusetts corporation ("AFIMS"), THE
FULCRUM TRUST (the "Fund") and INVESTORS BANK & TRUST COMPANY, a Massachusetts
trust company (the "Bank").
WHEREAS, AFIMS serves as investment manager for the Fund, a registered
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), consisting of the separate portfolios listed on Appendix A hereto;
----------
and
WHEREAS, AFIMS desires to retain the Bank to render certain administrative
services to the Fund and the Bank is willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. Appointment.
------------
AFIMS hereby appoints the Bank to act as Administrator of the Fund on
the terms set forth in this Agreement. The Bank accepts such appointment and
agrees to render the services herein set forth for the compensation herein
provided.
2. Delivery of Documents.
----------------------
AFIMS has furnished the Bank with copies properly certified or
authenticated of each of the following:
(a) The Fund's incorporating or organizing documents filed with the
Commonwealth of Massachusetts on September 8, 1993 and all amendments thereto
(the "Articles");
(b) The Fund's by-laws and all amendments thereto (the "By-Laws");
(c) The Fund's agreements with all service providers which include
any investment advisory agreements, sub-investment advisory agreements, custody
agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements");
(d) The Fund's most recent amendment to its Registration Statement on
Form N-1A (the "Registration Statement") under the Securities Act of 1933 and
under the 1940 Act; and
(e) The Fund's most recent prospectus and statement of additional
information (the "Prospectus"); and
(f) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for the Bank in the proper performance of its
duties hereunder.
Upon request, AFIMS will promptly furnish, or cause to be furnished
the Bank copies of all amendments of or supplements to the foregoing.
Furthermore, each party to this Agreement will notify the other promptly of any
matter which may materially affect the performance by the Bank of its services
under this Agreement.
Page 1
<PAGE>
3. Duties of Administrator.
------------------------
Subject to the supervision and direction of the Board of Directors of
the Fund, the Bank, as Administrator, will assist in conducting various aspects
of the Fund's administrative operations and undertakes to perform the services
described in Appendix B hereto. The Bank may, from time to time, perform
----------
additional duties and functions which shall be set forth in an amendment to such
Appendix B executed by both parties. At such time, the fee schedule included in
- ----------
Appendix C hereto shall be appropriately amended.
- ----------
In performing all services under this Agreement, the Bank shall act in
conformity with the Fund's Articles and By-Laws and the 1940 Act and other laws
as applicable, as the same may be amended from time to time, and the investment
objectives, investment policies and other practices and policies set forth in
the Fund's Registration Statement, as the same may be amended from time to time.
Notwithstanding any item discussed herein, the Bank has no discretion over the
Fund's assets or choice of investments.
4. Duties of the Fund.
-------------------
(a) The Fund agrees to make its legal counsel available to the Bank
for instruction with respect to any matter of law arising in connection with the
Bank's duties hereunder, and the Fund further agrees that the Bank shall be
entitled to rely on such instruction without further investigation on the part
of the Bank.
5. Fees and Expenses.
------------------
(a) For the services to be rendered and the facilities to be
furnished by the Bank, as provided for in this Agreement, AFIMS will compensate
the Bank in accordance with the fee schedule attached as Appendix C hereto.
----------
Such fees do not include out-of-pocket disbursements (as delineated on the fee
schedule or other expenses with the prior approval of the Fund's management) of
the Bank for which the Bank shall be entitled to bill AFIMS separately and for
which AFIMS shall reimburse the Bank.
(b) The Bank shall not be required to pay any expenses incurred by
the Fund or AFIMS.
(c) This Agreement does not obligate the Fund to pay the Bank any
fees or disbursements as described under paragraph 5(a) above.
6. Limitation of Liability.
------------------------
(a) The Bank agrees to indemnify and hold AFIMS and its directors,
officers, employees, agents and representatives harmless from and against any
and all losses, damages, liabilities, claims, costs and expenses, including
reasonable attorneys' fees and expenses, resulting from any claim, demand,
action or suit arising out of the Bank's willful misfeasance, bad faith or gross
negligence in the performance of its obligations and duties under this
Agreement.
(b) AFIMS agrees to indemnify and hold the Bank and its directors,
officers, employees, agents and representatives harmless from and against any
and all losses, damages, liabilities, claims, costs, and expenses including
reasonable attorneys' fees and expenses, resulting from any claim, demand,
action or suit related to AFIMS's performance of, or failure to perform, its
obligations under this Agreement and not resulting from willful misfeasance, bad
faith or gross negligence of the Bank.
(c) The Bank may apply to AFIMS at any time for instructions and may
consult counsel for AFIMS, or its own counsel, Morgan, Lewis and Bockius, and
with accountants and other experts with respect to any matter arising in
connection with its duties hereunder, and the Bank shall not be liable or
Page 2
<PAGE>
accountable for any action taken or omitted by it in good faith in accordance
with such instruction, or with the opinion of such counsel, accountants, or
other experts. The Bank shall not be liable for any act or omission taken or
not taken in reliance upon any document, certificate or instrument which it
reasonably believes to be genuine and to be signed or presented by the proper
person or persons. The Bank shall not be held to have notice of any change of
authority of any officers, employees, or agents of the Fund until receipt of
written notice thereof has been received by the Bank from the Fund.
(d) In the event the Bank is unable to perform, or is delayed in
performing, its obligations under the terms of this Agreement because of acts of
God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events beyond
the reasonable control of the Bank, the Bank shall not be liable to the Fund or
AFIMS for any damages resulting from such failure to perform, delay in
performance, or otherwise from such causes, except as results from the Bank's
own negligence, bad faith or willful misconduct. Notwithstanding the foregoing,
the Bank has and shall maintain appropriate back-up and disaster recovery
facilities and shall use it best efforts to provide all required information and
services hereunder to the Fund and AFIMS as soon as possible after any such
delay in performance.
7. Term and Termination of Agreement.
---------------------------------
(a) The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than ninety days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.
(i) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term or any Renewal Term in the event the other
party violates any material provision of this Agreement, provided that the non-
violating party gives written notice of such violation to the violating party
and the violating party does not cure such violation within 90 days of receipt
of such notice.
(ii) If a majority of the Fund's Board reasonably determines that
the performance of the Bank under this Agreement has been unsatisfactory,
written notice (the "Notice") of such determination setting forth the reasons
for such determination shall be provided to the Bank. Such determination shall
be based upon such information as the Fund's Board in its sole discretion elects
to consider, including the Bank's performance against the "Performance Goals"
(as defined below). In order to be effective, any Notice must be executed by two
officers of the Fund. The Bank shall, within sixty (60) days after receipt of
the Notice, either (i) correct the deficiencies listed in the Notice; or (ii)
renegotiate terms of this Agreement in a form satisfactory to the Fund. If the
conditions of the preceding sentence are not met within such sixty (60) day
period, the Fund may terminate this Agreement without additional action by the
Fund's Board upon an additional sixty (60) days written notice. For the purposes
of this Section, "Performance Goals" shall mean the performance goal criteria
mutually agreed between the parties. The parties agree to develop the initial
Performance Goals no later than June 30, 1999 and agree to periodically review
the Performance Goals for necessary updates due to changes in the nature or
scope of services provided hereunder.
Page 3
<PAGE>
(b) At any time after the termination of this Agreement, the Fund or
AFIMS may, upon written request, have reasonable access to the records of the
Bank relating to its performance of its duties as Administrator.
8. Miscellaneous.
--------------
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to AFIMS or the Bank shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To AFIMS:
Allmerica Financial Investment Management Services, Inc.
440 Lincoln Street
Worcester, MA 01653
Attention: President
With a copy to: Counsel
To the Fund:
The Fulcrum Trust
440 Lincoln Street
Worcester, MA 01653
Attention: President
With a copy to: Counsel
To the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02117-9130
Attention: Geoffrey M. O'Connell, Director, Client Management
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent of the
other party.
(c) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, without regard to its conflict of laws
provisions.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
9. Confidentiality.
----------------
All books, records, information and data pertaining to the business
of the other party which are exchanged or received pursuant to the negotiation
or the carrying out of this Agreement shall remain confidential, and shall not
be voluntarily disclosed to any other person, except as may be required in the
performance of duties hereunder or as otherwise required by law.
Page 4
<PAGE>
10. Use of Name.
-----------
AFIMS shall not use the name of the Bank or any of its affiliates in
any prospectus, sales literature or other material relating to the Fund in a
manner not approved by the Bank prior thereto in writing; provided however, that
the approval of the Bank shall not be required for any use of its name which
merely refers in accurate and factual terms to its appointment hereunder or
which is required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental or
judicial authority; provided further, that in no event shall such approval be
----------------
unreasonably withheld or delayed.
11. Limitation of Liability. A copy of the Agreement and Declaration of
-----------------------
Trust of the Fund is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed by or
on behalf of the Fund by the Trustees as Trustees or by the officers as officers
and not individually, and that the obligations of this Agreement are not binding
upon any of the Trustees, officers or shareholders of the Fund, but are binding
only upon the assets and property of the Fund. The parties hereto agree that no
shareholder, Trustee or officer of the Fund may be held personally liable or
responsible for any obligation of the Fund arising out of this Agreement.
12. Headings. The headings of the paragraphs hereof are included for
--------
convenience of reference only and do not form a part of this Agreement.
(The remainder of this page intentionally left blank.)
Page 5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed and delivered by their duly authorized officers as of the date first
written above.
THE FULCRUM TRUST
By: /s/ David J. Mueller
--------------------------------
Name: David J. Mueller
Title: Vice President/Treasurer
ALLMERICA FINANCIAL INVESTMENT
MANAGEMENT SERVICES, INC.
By: /s/ Stephen W. Bright
--------------------------------
Name: Stephen W. Bright
Title: Vice President
INVESTORS BANK & TRUST COMPANY
By: /s/ Michael F. Rogers
--------------------------------
Name: Michael F. Rogers
Title: Executive Vice President
Page 6
<PAGE>
Appendices
----------
Appendix A .......................................... Portfolios
Appendix B .......................................... Services
Appendix C .......................................... Fee Schedule
<PAGE>
Appendix A
----------
Portfolios
. The Value Portfolio
. The Growth Portfolio
. The International Growth Portfolio
. The Strategic Income Portfolio
. The Global Interactive/Telecomm Portfolio
<PAGE>
Appendix B
----------
Services
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust AFIMS or Counsel
- ------------------------------- ----------------------------------- ------------------------------- --------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION
- -------------------------------
<S> <C> <C> <C>
Monitor portfolio compliance Perform tests of certain specific Continuously monitor portfolio A/C - Provide consultation
in accordance with the current portfolio activity designed from activity and Fund operations in as needed on compliance
Prospectus and SAI. provisions of the Fund's Prospectus conjunction with 1940 Act, issues.
and SAI. Follow-up on potential Prospectus, SAI and any other
violations. applicable laws and
regulations. Monitor testing
results and approve resolution
Frequency: Daily of compliance issues.
Provide compliance summary Provide a report of compliance Review report. A/C - Provide consultation
package. testing results. as needed.
Frequency: Monthly
Perform asset diversification Perform asset diversification tests Continuously monitor portfolio A - Provide consultation as
testing to establish at each tax quarter end. Follow-up activity in conjunction with needed in establishing
qualification as a RIC and on issues. IRS requirements. Review test positions to be taken in tax
to meet requirements of results and take any necessary treatment of particular
Section 817(h). action. Approve tax positions issues. Review quarter end
taken. tests on a current basis.
Frequency: Quarterly
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust AFIMS or Counsel
- ------------------------------------ ------------------------------ ------------------------------ ---------------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION (CONT.)
- ------------------------------------
<S> <C> <C> <C>
Perform qualifying income testing to Perform qualifying income Continuously monitor portfolio A- Consult as needed on tax
establish qualification as a RIC. testing (on book basis income, activity in conjunction with accounting positions to be
unless material differences are IRS requirements. Review test taken. Review in
anticipated) on quarterly basis results and take any necessary conjunction with year-end
and as may otherwise be action. Approve tax positions audit.
Frequency: Quarterly necessary. Follow-up on issues. taken.
Prepare the Fund's annual expense Prepare preliminary expense Provide asset level
budget. Establish daily accruals. budget. Notify fund accounting projections. Approve expense
of new accrual rates. budget.
Frequency: Annually
Monitor the Fund's expense budget. Monitor actual expenses updating Provide asset level projections C/A - Provide consultation
budgets/ expense accruals. quarterly. Provide vendor as requested.
information as necessary.
Review expense analysis and
approve budget revisions.
Frequency: Monthly
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund
Function Investors Bank & Trust AFIMS Auditor or Counsel
- ---------------------------------------- ----------------------------------- ------------------------------ -------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION (CONT.)
- ----------------------------------------
<S> <C> <C> <C>
Monitor Performance-Based Management Fee Calculate Incentive Fee adjustment, Coordinate a meeting to review
according to agreed-upon existing calculation
methodology. Coordinate review by methodology and support, and to
Frequency: Daily management. Notify Fund Accounting agree to changes (if any).
of adjusting entries. Review and approve calculations
of Management Fee.
Receive and coordinate payment of fund Propose allocations of invoice among Approve invoices and
expenses. Funds and obtain authorized approval allocations of payments. Send
to process payment. invoices to IBT in a timely
Frequency: As often as necessary manner.
Calculate periodic dividend rates to be Calculate amounts available for Establish and maintain dividend C - Review dividend
declared in accordance with management distribution. Coordinate review by and distribution policies. resolutions in
guidelines. management and/or auditors. Notify Approve distribution rates per conjunction with
custody and transfer agent of share and aggregate amounts. Board approval.
authorized dividend rates in Obtain Board approval when
accordance with Board approved required. A - Review and
policy. Report dividends to Board concur with
Frequency: Annually as required. proposed
distributions
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust AFIMS or Counsel
- ----------------------------------- ---------------------------------- ---------------------------- ----------------------
MANAGEMENT REPORTING
& TREASURY ADMINISTRATION (CONT.)
- -----------------------------------
<S> <C> <C> <C>
Calculate total return information Provide total return calculations. Review total return
on Funds as defined in the current information.
Prospectus and SAI.
Frequency: Monthly
Prepare responses to major industry Prepare, coordinate as necessary, Identify the services to
questionnaires. and submit responses to the which the Funds report.
appropriate agency. Provide information as
Frequency: As often as necessary requested.
Prepare disinterested trustee Form Summarize amounts paid to Provide social security
1099-Misc. trustees during the calendar numbers and current mailing
year. Prepare and mail Form address for trustees.
1099-Misc. Review and approve
Frequency: Annually information provided for
Form 1099-Misc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust AFIMS or Counsel
- -------------------------------------- ---------------------------------------------------------------------------------------------
FINANCIAL REPORTING
- --------------------------------------
<S> <C> <C> <C>
Prepare financial information for Prepare selected portfolio and Review financial information.
presentation to Fund Management and financial information for inclusion
Board of Directors. in board material.
Frequency: Quarterly
Coordinate the annual audit and Coordinate the creation of templates Provide past financial A - Perform audit and
semi-annual preparation and printing reflecting client-selected statements and other issue opinion on annual
of financial statements and notes standardized appearance and text of information required to create financial statements.
with management, fund accounting and financial statements and footnotes. templates, including report
the fund auditors. Draft and manage production cycle. style and graphics. Approve A/C - Review reports.
Coordinate with IBT fund accounting format and text as standard.
the electronic receipt of portfolio Approve production cycle and
and general ledger information. assist in managing to the
Assist in resolution of accounting cycle. Coordinate review and
issues. Using templates, draft approval by portfolio managers
financial statements, coordinate of portfolio listings to be
auditor and management review, and included in financial
clear comments. Coordinate printing statements. Prepare
of reports and EDGAR conversion with appropriate management letter
outside printer and filing with the and coordinate production of
SEC via EDGAR. Management Discussion and
Analysis. Review and approve
entire report. Make
Frequency: Annually/semi-annually appropriate representations in
conjunction with audit.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust AFIMS or Counsel
- -------------------------------- ------------------------------------------------------------------------------------------------
LEGAL
- --------------------------------
<S> <C> <C> <C>
Prepare and file Form N-SAR. Prepare form for filing. Obtain any Provide appropriate responses. C - Review initial filing.
necessary supporting documents. Provide applicable Exhibits to A - Provide annual audit
File with SEC via EDGAR. attach to filing. Review and internal control letter to
authorize filing. accompany the annual
filing.
Frequency: Semi-annually
Assist the preparation and filing Accumulate capital stock information. Review and approve capital A/C - Review informally
of Form 24f-2 Notice. stock worksheet. when requested
Frequency: Annually
Respond to regulatory audits. Compile and provide documentation Coordinate with regulatory C - Provide consultation
pursuant to audit requests. Assist auditors to provide requested as needed.
client in resolution of audit documentation and resolutions
Frequency: As needed (at least inquiries. to inquiries.
annually)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust AFIMS or Counsel
- ------------------------------------------------------------------------------------------------------------------------------------
TAX
- ------------------------------
<S> <C> <C> <C>
Prepare income tax provisions. Calculate investment company taxable Provide transaction information A - Provide consultation
income, net tax exempt interest, net as requested. Identify Passive as needed in establishing
capital gain and spillback dividend Foreign Investment Companies positions to be taken in
requirements. Identify book-tax (PFICs). Approve tax tax treatment of particular
accounting differences. Track accounting positions to be issues. Perform review in
required information relating to taken. Approve provisions. conjunction with the
accounting differences. year-end audit.
Frequency: Annually
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust AFIMS or Counsel
- -------------------------- ----------------------------------------------------------------------------------------------------
TAX (CONT.)
- --------------------------
<S> <C> <C> <C>
Calculate excise tax Calculate required distributions to Provide transaction information A - Provide consultation
distributions avoid imposition of excise tax. as requested. Identify Passive as needed in establishing
- Calculate capital gain net Foreign Investment Companies positions to be taken in
income and foreign currency (PFICs). Approve tax tax treatment of particular
gain/loss through October 31. accounting positions to be issues. Review and concur
- Calculate ordinary income and taken. Review and approve all with proposed distributions
distributions through a income and distribution per share.
specified cut off date. calculations, including
- Project ordinary income from projected income and dividend
cut off date to December 31. shares. Approve distribution
- Ascertain dividend shares. rates per share and aggregate
Identify book-tax accounting amounts. Obtain Board approval
differences. Track required when required.
information relating to accounting
differences. Coordinate review by
management and fund auditors.
Notify custody and transfer agent of
authorized dividend rates in
accordance with Board approved
policy. Report dividends to Board
as required.
Frequency: Annually
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suggested Fund Auditor
Function Investors Bank & Trust AFIMS or Counsel
- ---------------------------------- ---------------------------------------------------------------------------------------------
TAX (CONT.)
- ----------------------------------
<S> <C> <C> <C>
Prepare tax returns Prepare excise and RIC tax returns. Review and sign tax return. A - Review and sign tax
return as preparer.
Frequency: Annually
Prepare Form 1099 Obtain yearly distribution Review and approve information
information. Calculate 1099 provided for Form 1099.
reclasses and coordinate with
transfer agent.
Frequency: Annually
Prepare other year-end tax-related Obtain yearly income distribution Review and approve information
disclosures information. Calculate disclosures provided.
(i.e., dividend received deductions,
foreign tax credits, tax-exempt
income, income by jurisdiction) and
coordinate with transfer agent.
Frequency: Annually
</TABLE>
<PAGE>
Appendix C
----------
The Fulcrum Trust
Fee Schedule
================================================================================
CUSTODY, FUND ACCOUNTING, CALCULATION OF N.A.V. and
FUND ADMINISTRATION
================================================================================
A. Domestic Custody, Fund Accounting, Calculation of N.A.V. and Fund
------------------------------------------------------------------
Administration
--------------
The following fees will apply to all assets for which Investors Bank
provides custody, fund accounting, calculation of N.A.V. and fund
administration. This fee does not include transactions or global custody
costs.
Annual Fee
----------
First $2 Billion of Net Assets 3.5 Basis Points
Next $2 Billion of Net Assets 2.5 Basis Points
Assets in excess of $4 Billion 2.0 Basis Points
The yearly minimum fee for each fund is $75,000.
B. Transactions
. DTC/Fed Book Entry $ 8**
. Physical Securities 35
. Options and Futures 18
. GNMA Securities 30
. Principal Paydown 5
. Foreign Currency 18***
. Outgoing Wires 7
. Incoming Wires 5
** Assumes trade information is sent electronically to Investors Bank in the
ISITC/SWIFT format. Manual trades will be billed at $12.00 per trade. There
are no transaction charges for use of the Investors Bank Repo.
***There are no transaction charges for F/X contracts executed by Investors
Bank.
<PAGE>
C. Foreign Subcustodian Fees
-------------------------
. Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the attached global custody
fee schedule. Local duties, script fees, registration, exchange fees,
and other market charges are out-of-pocket.
. Investors Bank will require the fund to hold all international assets
at the subcustodian of our choice.
================================================================================
MISCELLANEOUS
================================================================================
A. Out-of-Pocket
-------------
. These charges consist of:
-Reasonable Legal Expenses -Non Standard Extracts
-Printing, Delivery & Postage -Data Transmissions
-Third Party Review -Forms & Supplies
-Extraordinary Travel Expenses -Micro Rental
-Customized Systems Development/Reports -InvestView
-Pricing and Verification services
-Telecommunications
-Financial Statement Printing/Edgarization
-Support Equipment Rental
B. Domestic Balance Credit
-----------------------
. We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship. The
credit is based on collected balances reduced by balances required to
support the activity charges of the accounts. The monthly earnings
allowance is equal to 75% of the 90-day T-bill rate.
C. Foreign Exchange, Cash Management and Securities Lending
--------------------------------------------------------
. This Fee Schedule assumes Investors Bank will perform foreign exchange,
cash management and security lending services for the portfolios.
Securities lending revenue is split with the portfolios and Investors
Bank on a 60/40% basis: 60% going to the portfolio. Securities lending
revenue to AST is estimated to be $21,600 per year based on current
portfolios.
D. Payment
-------
. The above fees will be charged against the fund's custodian checking
account five business days after the invoice is mailed.
<PAGE>
E. Systems
-------
. The details of any systems work will be determined after a thorough
business analysis. System's work will be billed on a time and material
basis. Investors Bank provides an allowance of 10 systems hours for data
extract set up and reporting extract set up. Additional hours will be
billed on a time and material basis.
F. Term
----
. The term of this Fee Schedule shall be three years commencing upon the
date of conversion of the Company's assets to the Bank (the "Initial
term").
* This fee schedule is contingent on Investors Bank providing custody and
related services for the Allmerica Investment Trust, the Fulcrum Trust and
Allmerica Separate Accounts.
* This fee schedule is confidential between Investors Bank and the The Fulcrum
Trust and shall not be disclosed to any third party without the written
consent of both parties, except the Fund may include this fee schedule in
filings with the Securities and Exchange Commission as required.
<PAGE>
Addendum to
-----------
Appendix C
to Administration Services Agreement dated April 1, 1999
--------------------------------------------------------
The Fulcrum Trust
Fee Schedule
================================================================================
CUSTODY, FUND ACCOUNTING, CALCULATION OF N.A.V. and
FUND ADMINISTRATION
================================================================================
A. Domestic Custody, Fund Accounting, Calculation of N.A.V. and Fund
------------------------------------------------------------------
Administration
--------------
This addendum is to clarify the amount of fees set forth in the Fee Schedule
that will apply to fund administration services provided by Investors Bank. Of
the fees set forth under the heading "Domestic Custody, Fund Accounting,
Calculation of N.A.V., Fund Administration and Transfer Agency" (including any
minimum fees charged) $34,000 annually per portfolio will be charged on account
of administrative services provided by Investors Bank. Such amounts do not
constitute fees in addition to those set forth in the Fee Schedule referenced
above and will not be charged to the Fund but rather will be charged and billed
on a monthly basis directly to ALLMERICA FINANCIAL INVESTMENT MANAGEMENT
SERVICES, INC., a Massachusetts corporation ("AFIMS"), as investment manager for
the Fund. AFIMS hereby agrees to pay all such amounts billed within 30 days of
its receipt of an invoice for such amounts from Investors Bank.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed and delivered by their duly authorized officers as of April 1, 1999.
THE FULCRUM TRUST
By: /s/ Stephen W. Bright
--------------------------
Name: Stephen W. Bright
Title: Vice President
ALLMERICA FINANCIAL INVESTMENT
MANAGEMENT SERVICES, INC.
By: /s/ John P. Kavanaugh
--------------------------
Name: John P. Kavanaugh
Title: Vice President
INVESTORS BANK & TRUST COMPANY
By: /s/ Andrew M. Nesvet
--------------------------
Name: Andrew M. Nesvet
Title: Senior Director
<PAGE>
Exhibit 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 11 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 15, 2000, relating to the financial
statements and financial highlights which appears in the December 31, 1999
Annual Report to Shareholders of The Fulcrum Trust, which are also incorporated
by reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights", "Independent Accountants" and
"Financial Statements" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
April 27, 2000
<PAGE>
Exhibit 16(a)
The Fulcrum Trust
CODE OF ETHICS
Pursuant to Rule 17j-1
March 22, 2000
The Fulcrum Trust (hereinafter referred to as the "Trust") has determined to
adopt this Code of Ethics, ("this Code") to specify and prohibit certain types
of personal securities transactions deemed to create conflicts of interest, to
prevent the Trust's Officers, Trustees and other personnel, as applicable, from
engaging in conduct prohibited by Rule 17j-1 of the Investment Company Act of
1940 (the "Rule") and to establish reporting requirements and enforcement
procedures pursuant to the provisions of the Rule.
GENERAL PRINCIPLES
This Code is intended to embody the following general principles:
1. The duty of all personnel at all times to place the interests of Trust
shareholders first;
2. The requirement that all personnel securities transactions must be
conducted consistent with this Code and in such a manner as to avoid
any actual or potential conflict of interest or any abuse of an
individual's position of trust and responsibility; and
3. The fundamental standard that personnel must not take inappropriate
advantage of their positions.
This Code is divided into three parts. The first part contains provisions
applicable to Trustees and Officers who are officers, directors or employees of
any investment adviser, sub-adviser, recordkeeping agent or principal
underwriter of the Trust ("Service Provider"). The second part pertains to
unaffiliated Trustees of the Trust. The third part contains recordkeeping and
other provisions.
CODE APPROVALS
The Board of Trustees of the Trust, including a majority of Trustees who are not
interested persons, must approve this Code, the code of ethics of each Service
Provider and any material changes to such codes. The Board must base its
approval of a code of ethics and any material changes to that code on a
determination that the code contains provisions reasonably necessary to prevent
applicable personnel from engaging in any conduct prohibited by Rule 17j-1 (b)
of the Rule. Before approving this Code or a code of ethics of an investment
adviser, sub-adviser or principal underwriter, if any, or an amendment to any
such code, the Board of Trustees must receive a certification that the
applicable organization has adopted procedures reasonably necessary to prevent
its officers, trustees/directors and other personnel from violating its code of
ethics. The Trust's Board of Trustees must approve the code of ethics of an
investment adviser, sub-adviser or principal underwriter before initially
retaining the firm's services. The Trust's Board must approve a material change
to a previously approved code no later than six months
<PAGE>
after adoption of the material change. See also Section III.A. "Amendments to
Service Provider's Code of Ethics".
I. Rules Applicable to Affiliated Officers and Trustees Who Are Officers,
Directors, or Employees of Service Providers.
A. Incorporation of Service Provider's Code of Ethics. The provisions of
each Service Provider's Code of Ethics are incorporated herein by
reference as the Trust's Code of Ethics applicable to Trustees, or
Officers of the Trust who are officers, directors or employees of a
Service Provider or an affiliate of such Service Provider. A violation
of a Service Provider's Code of Ethics shall constitute a violation of
this Code.
B. Reports.
(1) Trustees or Officers of the Trust who are officers, directors or
employees of a Service Provider or an affiliate of such Service
Provider shall file the confidential reports required under such
Service Provider's Code of Ethics with the officer (the "Review
Officer") designated from time to time by the Trustees of the
Trust to receive such reports.
(2) A report filed with the Review Officer shall be deemed to be
filed with the Trust.
C. Review and Sanctions for Affiliated Officers. In respect of Officers
of the Trust who are also officers, directors or employees of a
Service Provider or an affiliate of such Service Provider, the
provisions of such Service Provider's Code of Ethics relating to
review and to sanctions shall govern. Where any violation of the
Service Provider's Code of Ethics is found in respect of any such
Officer of the Trust, it shall be reported to the Trustees of the
Trust, together with any sanctions imposed for such violation. The
Trustees may, at their option, impose such further sanctions as are
deemed appropriate.
D. Review and Sanctions for Affiliated Trustees. In respect of Trustees
of the Trust who are also officers, directors or employees of a
Service Provider or an affiliate of such Service Provider, the
procedure for review and sanctions set forth in such Service
Provider's Code of Ethics shall govern. Where any violation of the
Service Provider's Code of Ethics is found in respect of any such
Affiliated Trustee of the Trust, it shall be reported to Trustees of
the Trust, together with any sanctions imposed for such violation.
The Trustees may, at their option, impose such further sanctions as
are deemed appropriate.
II. Rules Applicable to Unaffiliated Trustees.
A. Definitions.
(1) "Affiliated person" shall have the same meaning as set forth in
Section 2(a)(3) of the Investment Company Act.
(2) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the
provisions of Section 16 of the
2
<PAGE>
Securities Exchange Act of 1934 and the rules and regulations
thereunder. Application of this definition is explained in more
detail in Appendix A hereto.
(3) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Investment Company Act. Section 2(a)(9)
provides that "control" means the power to exercise a controlling
influence over the management or policies of a company, unless
such power is solely the result of an official position with such
company.
(4) "Disinterested Trustee" means a Trustee of the Trust who is not
an "interested person" of the Trust within the meaning of Section
2(a)(19) of the Investment Company Act.
(5) "Purchase or sale of a security" includes, among other things,
the writing of an option to purchase or sell a security.
(6) "Security" shall have the same meaning as that set forth in
Section 2(a)(36) of the Investment Company Act (in effect, all
securities), except that it shall not include direct obligations
of the United States, short-term securities issued or guaranteed
by an agency or instrumentality of the United States, bankers
acceptances, bank certificates of deposit, commercial paper and
shares of registered open-end investment companies, and any other
securities excepted by the Rule.
(7) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such
a recommendation.
(8) "Unaffiliated Trustee" means a Trustee of the Trust who is not an
officer, director, employee or shareholder of any Service
Provider or of any affiliated person of any Service Provider.
B. Prohibited Purchases and Sales. No Unaffiliated Trustee of the Trust
shall purchase or sell, directly or indirectly, any security in which
he or she has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership and which to his or her knowledge at
the time of such purchase or sale.
(1) is being considered for purchase or sale by the Trust; or
(2) is being purchased or sold by the Trust; or
(3) was purchased or sold by the Trust within the most recent 15 days
if such person participated in the recommendation to, or the
decision by, the Trust to purchase or sell such security.
C. Exempted Transactions. The prohibitions of Section II-B of this Code
shall not apply to
(1) purchases or sales effected in any account over which the
Unaffiliated Trustee has no direct or indirect influence or
control;
3
<PAGE>
(2) purchases or sales which are non-volitional on the part of either
the Unaffiliated Trustee or the Trust;
(3) purchases which are part of an automatic dividend reinvestment
plan;
(4) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
--- ----
the extent such rights were acquired from such issuer, and sales
of such rights so acquired;
(5) purchases or sales previously approved by the Trust's Review
Officer (a) since they are only remotely potentially harmful to
the Trust because they would be very unlikely to affect a highly
institutional market or because they clearly are not related
economically to the securities to be purchased, sold or held by
the Trust, or (b) as not presenting any danger of the abuses
proscribed by the Rule, which approval shall be confirmed in
writing.
D. Reporting.
(1) Every Unaffiliated Trustee of the Trust who is also a
Disinterested Trustee of the Trust shall file with the person(s)
designated by the Trustees as "the Trust's Review Officer(s)" a
report containing the information described in Section II-D(4) of
this Code with respect to transactions in any security in which
such Disinterested Trustee has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership, whether or
not one of the exemptions listed in Section 11-C applies, if such
Trustee, at the time of that transaction, knew or, in the
ordinary course of fulfilling his or her official duties as a
Trustee of the Trust, should have known that, during the 15-day
period immediately preceding or following the date of the
transaction by the Trustee:
(a) such security was being purchased or sold by the Trust, or
(b) such security was being considered for purchase or sale by
the Trust or by a Service Provider for the portfolio of the
Trust.
Notwithstanding the preceding sentence, any Disinterested Trustee may,
at his or her option, report the information described in Section II-
D(4) with respect to any one or more transactions in any security in
which such person has, or by reason of the transaction acquires, any
direct or indirect beneficial ownership.
(2) Every Unaffiliated Trustee of the Trust who is not also a
Disinterested Trustee of the Trust shall file with the Review
Officer(s) a report containing the information described in
Section II-D(4) of this Code with respect to transactions in any
security in which such Trustee has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership, whether or not one of the exemptions listed in Section
II-C applies.
4
<PAGE>
(3) Anything in Section II-D(1) or (2) above to the contrary
notwithstanding, no Unaffiliated Trustee shall be required to
make a report with respect to transactions effected for any
account over which such person does not have any direct or
indirect influence or control.
(4) Every report shall be made not later than 10 days after the end
of the calendar quarter in which the transaction to which the
report relates was effected, and shall contain the following
information.
(a) the date of the transaction, the title and the number of
shares or the principal amount of each security involved;
(b) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) the price at which the transaction was effected; and
(d) the name and address of the broker, dealer or bank with or
through whom the transaction was effected.
(5) Every report concerning a purchase or sale prohibited under
Section II-B herein with respect to which the reporting person
relies upon one of the exemptions provided in Section II-C herein
shall contain a brief statement of the exemption relied upon and
the circumstances of the transaction.
(6) Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report
that he or she has any direct or indirect beneficial ownership in
the security to which the report relates. Such report also may
contain a statement that the report is made with respect to all
portfolio transactions of such person, and shall not be construed
as an admission that the person knew or should have known of
portfolio transactions by the Trust in such securities.
E. Review.
(1) The Trust's Review Officer(s) shall compare the reported personal
securities transactions with the completed and contemplated
portfolio transactions of the Trust to determine whether any
transaction ("Reviewable Transactions") listed in Section II-B
(disregarding exemptions provided by Section II-C(1) through (4))
may have occurred.
(2) If the Trust's Review Officer(s) determines that a Reviewable
Transaction may have occurred, the Review Officer shall determine
whether a violation of this Code may have occurred, taking into
account all the exemptions provided under Section II-C. Before
making any determination that a violation has been committed by a
Trustee, the Trust's Review Officer(s) shall give such person an
opportunity to supply additional information regarding the
transaction in question.
5
<PAGE>
F. Sanctions. If the Trust's Review Officer(s) determines that any
Trustee of the Trust has violated this Code, he shall so advise the
Chairman of the Board of the Trust and also a committee consisting of
the Disinterested Trustees (other than the person whose transaction is
under consideration), and shall provide the committee with the report,
the record of pertinent actual or contemplated portfolio transactions
or the Trust, and any additional material supplied by such person. The
committee, at its option, either shall impose such sanctions as it
deems appropriate or refer the matter to the full Board of Trustees,
which shall impose such sanctions as are deemed appropriate.
III. Miscellaneous.
A. Amendments to Service Provider's Code of Ethics. Any amendment to a
Service Provider's Code of Ethics shall be deemed an amendment to
Section I-A of this Code, effective 90 days after written notice of
such amendment shall have been received by the Secretary of the Trust,
unless the Trustees of the Trust expressly determine that such
amendment shall become effective at an earlier date or have not
approved the amendment as provided under "Code Approvals".
B. Records. The Trust shall maintain records in the manner and to the
extent set forth below, which records may be maintained in any manner
described in Rule 31A-2(f)(1) under the Investment Company Act, and
shall be available for examination by representatives of the
Securities and Exchange Commission:
(1) A copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place.
(2) A record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs.
(3) A copy of each report made by any person pursuant to this Code
shall be preserved for a period of not less than five years from
the end of the fiscal year in which it is made, for the first two
years in an easily accessible place.
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code, or who are
or were responsible for reviewing these reports, shall be
maintained in an easily accessible place.
C. Confidentiality. All reports of securities transactions and any other
information filed with the Trust pursuant to this Code shall be
treated as confidential.
D. Interpretation of Provisions. The Trustees may from time to time adopt
such interpretations of this Code as they deem appropriate.
E. Administration and Procedures. The Trust must use reasonable diligence
and institute procedures reasonably necessary to prevent violations of
this Code. The Trust must institute procedures by which appropriate
management or compliance personnel review reports required to be
submitted to the Trust under this Code. The Trust must identify all
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persons who are required to make reports to the Trust under this Code
and must inform those persons of their reporting obligation.
No less frequently than annually, the Trust must furnish to the
Trust's Board of Trustees and the Board of Trustees must consider, a
written report that:
(1) Describes any issues arising under this Code or procedures or the
codes of ethics of the Service Providers since the last report to
the Board of Trustees, including, but not limited to, information
about material violations of such codes or procedures and
sanctions imposed in response to the material violations; and
(2) Certifies that the Trust and its Service Providers have adopted
procedures reasonably necessary to prevent their respective
officers, trustees/directors and other personnel from violating
this Code or the codes of the respective Service Providers.
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APPENDIX A
to
CODE OF ETHICS
This Code of Ethics relates to the purchase or sale of securities of which a
covered person has a direct or indirect "beneficial ownership" except for
purchases or sales in accounts over which the person has no direct or indirect
influence or control as described below.
Beneficial Ownership
"Beneficial ownership" means that one directly or indirectly, by written or
unwritten understanding, has (or shares a direct or indirect) financial interest
regardless of who is the owner of record. Financial interest means the
opportunity directly or indirectly to participate in the risks and rewards of a
transaction. Securities owned by a person or by a trust of which one has a
beneficial ownership or a similar arrangement include, but are not limited to:
(1) Securities owned by your spouse, your minor children and relatives of
you and your spouse who live in your home, including trusts of which
such persons are beneficiaries (other than interests in a trust over
which neither you nor such persons has any direct or indirect
influence or control over investments);
(2) A proportionate interest in securities held by a partnership of which
you are a general partner;
(3) Securities in which you have a right to dividends that is separated or
separable from the underlying securities;
(4) Securities that you have a right to acquire through the exercise or
conversion of another security, whether or not presently exercisable;
and
(5) Securities held in accounts from which you receive a performance
related fee based on less than one year's performance.
You do not have a financial interest in securities held by a corporation of
which you are not a controlling shareholder and do not have or share investment
control over its portfolio.
No Influence or Control
The Code does not apply to purchases and sales of securities transactions
effected in any account over which you do not have "any direct or indirect
influence or control". However, this "no direct or indirect influence or
control" exception is, in the opinion of our counsel, limited to few situations.
The principal one is that described in paragraph (1) above, where securities are
held in a trust, in which you have a beneficial interest, but where you are not
the Trustee and have no control or influence over the Trustee.
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Exhibit 16(b)
Analytic Investors, Inc.
Code of Ethics
This Code of Ethics has been adopted by the officers and directors of Analytic
Investors, Inc. in accordance with Rule 17j-1(b) under the Investment Company
Act of 1940, as amended (the "Act"), and the Recommendations of the Investment
Company Institute Advisory Group on Personal Investing. Rule 17j-1 under the Act
generally proscribes fraudulent or manipulative practices with respect to
purchases or sales of securities held or to be acquired by investment companies,
if effected by associated persons of such investment companies.
While affirming its confidence in the integrity and good faith of all of its
employees, officers, and directors, Analytic Investors, Inc. recognizes that
certain of its personnel have or may have knowledge of present or future
portfolio transactions and, in certain instances, the power to influence
portfolio transactions made by or for Analytic Investors, Inc.'s Clients, and
that if such individuals engage in personal transactions in securities that are
eligible for investment by Clients, these individuals could be in a position
where their personal interests may conflict with the interests of Clients.
In view of the foregoing and of the provisions of Rule 17j-1(b)(1) under the
Act, Analytic Investors, Inc. has determined to adopt this Code of Ethics to
specify and prohibit certain types of transactions deemed to create actual
conflicts of interest, the potential for conflicts, or the appearance of
conflicts, and to establish reporting requirements and enforcement procedures.
I. Statement of General Principles
In recognition of the trust and confidence placed in Analytic Investors, Inc. by
its Clients and to give effect to Analytic Investors, Inc.'s belief that its
operations should be directed to benefit its Clients, Analytic Investors, Inc.
hereby adopts the following general principles to guide the actions of its
employees, officers, and directors:
1. The interests of Clients are paramount. All Analytic Investors, Inc.
personnel must conduct themselves and their operations to give maximum
effect to this tenet by assiduously placing the interests of Clients before
their own.
2. All personal transactions in securities by Analytic Investors, Inc.
personnel must be accomplished so as to avoid even the appearance of a
conflict of interest on the part of such personnel with the interests of a
Client.
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3. All Analytic Investors, Inc. personnel must avoid actions or activities
that allow (or appear to allow) a person to profit or benefit from his or
her position with respect to a Client, or that otherwise bring into
question the person's independence or judgment.
II. Definitions
1. "Access person" means (i) every director or officer of Analytic Investors,
Inc., (ii) every employee of Analytic Investors, Inc. who, in connection
with his or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a Security by a
Client, or whose functions relate to the making of any recommendations with
respect to such purchases or sales, and (iii) any natural person in a
control relationship to Analytic Investors, Inc. who obtains information
concerning recommendations made by Analytic Investors, Inc. with respect to
the purchase or sale of a Security by a Client.
2. "Beneficial ownership" of a Security is to be determined in the same manner
as it is for purposes of Section 16 of the Securities Exchange Act of 1934.
This means that a person should generally consider himself or herself the
beneficial owner of any securities in which he or she has a direct or
indirect pecuniary interest. In addition, a person should consider himself
or herself the beneficial owner of securities held by (i) his or her spouse
or domestic partner, (ii) minor children, (iii) a relative who shares his
or her home, or (iv) other persons by reason of any contract, arrangement,
understanding, or relationship that provides him or her with sole or shared
voting or investment power over the securities held by such person.
3. "Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the Act. Section 2(a)(9) provides that "control" means the power to
exercise a controlling influence over the management or policies of a
company, unless such power is solely the result of an official position
with such company. Ownership of 25% or more of a company's outstanding
voting securities is presumed to give the holder of those securities
control over the company. This is a rebuttable presumption, and it may be
countered by the facts and circumstances of the given situation. A natural
person shall not be presumed to be a controlled person.
4. "Client" means any investment company registered under the Act, a series of
an investment company registered under the Act, or a separately managed
investment management account for whom Analytic Investors, Inc. acts as
investment adviser or sub-adviser.
5. "Investment Personnel" means (a) any portfolio manager and (b) research
analysts, traders and other personnel, who provide information and/or
advice to
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any portfolio manager, or who execute or help execute any portfolio
manager's decisions.
6. A "Managed Limited Partnership" is any limited partnership of which
Analytic Investors, Inc. or any affiliate of Analytic Investors, Inc. is
the general partner or for which Analytic Investors, Inc. or any affiliate
of Analytic Investors, Inc. serves as investment adviser.
7. An Access Person's "Personal Account" means any Securities account in which
such Access Person has direct or indirect Beneficial Ownership. However,
an Access Person's "Personal Account" shall not include such Access
Person's interest in any Managed Limited Partnership in which not more than
5% of the total interests are represented by investments of the direct
portfolio manager(s) managing the partnership and not more than 10% of the
total interests are represented by investments of all Access Persons in the
aggregate. All similarly managed Managed Limited Partnerships will be
viewed as a single entity for this purpose. A Managed Limited Partnership
will not be considered a Personal Account of Analytic Investors, Inc. in
its capacity as General Partner of such partnership or as investment
adviser to such partnership.
8. "Purchase or sale of a Security" includes, among other things, the purchase
or sale of an option whose underlying instrument would be classified as a
security.
9. The designated "Review Officer" is the Compliance Officer of Analytic
Investors, Inc. The "Alternate Review Officers" are (i) the Chief
Investment Officer of Analytic Investors, Inc. or (ii) any designated
Managing Director of Analytic Investors, Inc. In the absence of the Review
Officer, an Alternate Review Officer shall act in all respects in the
manner prescribed herein for the Review Officer. A "Code of Ethics
Officer," as designated by the Review Officer, shall act under the
direction and supervision of the Review Officer.
10. A "Related Security" is any security whose value directly fluctuates as a
result of a change in the value of a security in the Securities Universe.
11. "Security" shall have the same meaning as that set forth in Section
2(a)(36) of the Act, except that it shall not include securities issued by
the Government of the United States or an agency thereof, bankers'
acceptances, bank certificates of deposit, commercial paper, and shares of
registered open-end mutual funds.
12. A "Security held or to be acquired" by a Client means any Security which,
within the most recent 15 days, (i) is or has been held by a Client or (ii)
is being or has been considered by Analytic Investors, Inc. for purchase
for a Client.
13. A Security is "being purchased or sold" by a Client from the time when a
recommendation has been communicated to the persons who place the buy and
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sell orders for a Client until the time when such program has been fully
completed or terminated.
14. "Security Universe" means only the Securities held or to be acquired by
the Analytic Investors, Inc., or a subsidiary of Analytic Investors, Inc.
located on the same premises as Analytic Investors, Inc. or using Analytic
Investors, Inc.'s security transaction facilities for a Client.
III. Prohibited Purchases and Sales of Securities
1. No Access Person shall, in connection with the purchase or sale, directly
or indirectly, by such person of a Security held or to be acquired by any
Client:
a) employ any device, scheme, or artifice to defraud such Client;
b) make to such Client any untrue statement of a material fact or omit to
state to such Client a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
c) engage in any act, practice, or course of business that would operate
as a fraud or deceit upon such Client; or
d) engage in any manipulative practice with respect to such Client.
2. Subject to certain exemptions in Section IV(4) of this Code, no Access
Person may purchase or sell, directly or indirectly, a Security for a
Personal Account at the same time that the same Security or a Related
Security is a Security in the Security Universe.
3. No Access Person shall reveal to any other person (except in the normal
course of his or her duties on behalf of any Client) any information
regarding transactions in securities by any Client or any such Securities
in the Security Universe.
4. No Access Person shall recommend any transaction in Securities by any
Client without having disclosed his or her interest, if any, in such
Securities or the issuer thereof, including without limitation:
a) the Access Person's direct or indirect Beneficial Ownership of any
Securities of such issuer;
b) any contemplated transaction by the Access Person in such Securities;
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c) any position the Access Person has with such issuer or its affiliates
(for example, a directorship); and
d) any present or proposed business relationship between such issuer or
its affiliates, on the one hand, and the Access Person or any party in
which the Access Person has a significant interest, on the other;
provided, however, that in the event the interest of such Access
Person in such Securities or issuer is not material to his or her
personal net worth and any contemplated transaction by the Access
Person in such Securities cannot reasonably be expected to have a
material adverse effect on any such transaction by any Client or on
the market for the Securities generally, that Access Person shall not
be required to disclose his or her interest in the Securities or the
issuer of the Securities in connection with any such recommendation.
5. No Investment Personnel may acquire for his or her Personal Account
Securities in an initial public offering.
6. No Investment Personnel shall purchase for his or her Personal Account a
Security offered in a private placement without the specific prior written
approval of the Review Officer.
7. No Investment Personnel shall profit from the purchase and sale, or sale
and purchase, of the same (or equivalent) Security within a 60-day calendar
day period. This 60-day period will not include any purchase or sale made
pursuant to the exercise or expiration of an option on a security, provided
that such exercise or expiration is not at the discretion of the Investment
Personnel. Other exceptions to this policy are permitted only with the
approval of the Review Officer.
8. Subject to Section IV (4) of this Code, new employees who at the date of
their employment own any security included in the Security Universe and
current employees with a security holding that subsequently is included in
the Security Universe are prohibited from engaging in any transaction which
might be deemed to violate Section III (i) of this Code.
IV. Pre-Clearance of Transactions
1. Except as provided in Section IV(4) of this Code, every Access Person must
pre-clear each proposed transaction in Securities with the Review Officer
prior to proceeding with the transaction. No transaction in Securities
shall be effected without the prior written approval of the Review Officer.
In determining whether
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to grant such clearance, the Review Officer shall refer to Section IV(4)
below. Pre-clearance of a Securities transaction is valid for two (2)
business days.
2. In determining whether to grant approval for the purchase of a Security
offered in a private placement, the Review Officer shall take into account,
among other factors, whether the investment opportunity should be reserved
for a Client, and whether the opportunity is being offered to the Access
Person by virtue of his or her position with Analytic Investors, Inc.
3. The pre-clearance requirements of Section IV(1) shall not apply to the
following transactions:
a) Purchases or sales over which the Access Person has no direct or
indirect influence or control.
b) Purchases or sales that are non-volitional on the part of the Access
Person, including purchases or sales upon exercise of puts or calls
written by the Access Person and sales from a margin account pursuant
to a bona fide margin call.
c) Purchases that are part of an automatic dividend reinvestment plan.
d) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
e) Purchases or sales of securities that are not eligible for inclusion
in the Securities Universe.
4. Transactions that shall be entitled to clearance from the Review Officer
include transactions which appear upon reasonable inquiry and investigation
to present no reasonable likelihood of harm to any Client and with respect
to registered investment companies, which are otherwise in accordance with
Rule 17j-l. Such transactions would normally include purchases or sales of
up to 1,000 shares of a Security that is in the Security Universe (but not
then being purchased or sold) if the issuer has a market capitalization of
over $1 billion. The Review Officer shall report all such transactions to
the Board of Directors.
V. Additional Restrictions and Requirements
1. No Access Person shall accept or receive any gifts, favors, gratuities or
other thing ("gifts") of more than de minims value from any person or
entity that does
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business with Analytic Investors, Inc All gifts with a fair market value in
excess of $100 are viewed as gifts of more than de minims value and require
pre-approval by the Review Officer. In addition, no investment personnel
may receive gifts from the same source valued at more than $250 per
individual recipient on an annual basis. No Access Person or member of his
or her family, may utilize the receipt of a gift when acting in a fiduciary
capacity.
2. No Investment Personnel shall accept a position as a director, trustee, or
general partner of a publicly-traded company or partnership unless the
acceptance of such position has been approved by the Review Officer as
consistent with the interests of the Clients.
3. Every Access Person must direct each brokerage firm or bank at which the
Access Person maintains a securities account to send duplicate copies of
confirmations of all personal securities transactions and copies of
periodic statements for all securities accounts promptly to Analytic
Investors, Inc. Compliance with this provision can be effected by the
Access Person providing duplicate copies of all such statements directly to
Analytic Investors, Inc.
VI. Reporting Obligations
1. Every Access Person shall report all transactions in which such Access
Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in Securities provided: however, an Access
Person shall not be required to make a report with respect to transactions
effected for any account over which such person does not have any direct or
indirect influence. Reports shall be filed with the Review Officer each
quarter. The Review Officer shall submit confidential quarterly reports
with respect to his or her own personal securities transactions to the
Alternate Review Officer, who shall act in all respects in the manner
prescribed herein for the Review Officer.
2. Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
a) the date of the transaction, the title and the number of shares, and
the principal amount of each security involved;
b) the nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
c) the price at which the transaction was effected;
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d) the name of the broker, dealer or bank with or through whom the
transaction was effected; and
e) the date the report was signed.
3. Any such report may refer to the information contained in the statements
required by Section VI (2) of this Code.
4. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she
has any direct or indirect Beneficial Ownership in the security to which
the report relates.
5. Every Access Person shall report the name of any publicly-traded company
(or any company anticipating a public offering of its equity securities)
and the total number of its shares beneficially owned by him or her if such
total ownership is more than 1/2 of 1% of the company's outstanding
shares.
6. Every Access Person who owns Securities acquired in a private placement
shall disclose such ownership to the Review Officer if such person is
involved in any subsequent consideration of an investment in the issuer by
a Client. Analytic Investors, Inc.'s decision to recommend the purchase of
such issuer's Securities to any Client will be subject to independent
review by Investment Personnel with no personal interest in the issuer.
7. In the event that no reportable transactions occurred during the quarter,
the report should be so noted and returned signed and dated.
8. Reports maintained pursuant to Rule 204-2(a)(12) under the Advisers Act
shall meet the requirements for reports required to be made under this
section.
9. Every Access Person shall certify annually that he or she:
a) has read and understands this code and recognized that he/she is
subject to it;
b) has complied with the Code; and
c) has disclosed and reported all personal securities transactions
required to be disclosed or reported.
d) at the time of employing an Access Person, every Access Person must
provide to the Review Officer a complete listing of all securities
owned by such person and thereafter must submit a revised list of such
holdings as of December 31 of each subsequent year to the Review
Officer.
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VII. Review and Enforcement
1. The Officer shall provide a comparison of all reported personal securities
transactions with completed portfolio transactions of the Access Persons
and a list of securities being considered for purchase or sale by Analytic
Investors, Inc. to the Review Officer. Determination of whether a
violation of this Code may have occurred will be made by the Review
Officer. Before making any determination that a violation has been
committed by any person, the Review Officer shall give such person an
opportunity to supply additional explanatory material.
2. If the Review Officer determines that a violation of this Code may have
occurred, he or she shall submit his or her determination and any
additional explanatory material provided by the individual, to an Alternate
Review Officer, who shall make an independent determination as to whether a
violation has occurred.
3. If the Alternate Review Officer finds that a violation has occurred, the
Alternate Review Officer shall impose upon the individual such sanctions as
he or she deems appropriate, including, but not limited to, a letter of
censure, suspension or termination of the employment of the violator, or
disgorgement of profits. There shall be no mandatory sanction for
inadvertent non-compliance with the blackout trading restrictions set forth
in Section III(2).
4. No Person shall participate in a determination of whether he or she has
committed a violation of this Code or of the imposition of any sanction
against himself. If a Securities transaction of the Alternate Review
Officer is under consideration, the other Alternate Review Officer or the
Chief Executive Officer shall act in all respects in the manner prescribed
herein for an Alternate Review Officer.
VIII. Records
Analytic Investors, Inc. shall maintain records in the manner and to the extent
set forth below, which records shall be available for examination by
representatives of the Securities and Exchange Commission.
1. A copy of this Code and any other code which is, or at any time within the
past six years has been, in effect shall be preserved;
2. A record of any violation of this Code, and of any action taken as a result
of such violation, shall be preserved for a period of not less than six
years;
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3. A copy of each report made by an Access Person pursuant to this Code shall
be preserved for a period of not less than six years; and
4. A list of all persons who are, or within the past six years have been
required to make reports pursuant to this Code shall be maintained.
IX. Miscellaneous
1. All reports of securities transactions and any other information filed with
Analytic Investors, Inc .pursuant to this Code shall be treated as
confidential.
2. Analytic Investors, Inc. may from time to time adopt such interpretations
of this Code as it deems appropriate.
3. The Review Officer shall prepare a report to Analytic Investors, Inc.'s
Board of Directors, upon request, as to the operation of this Code and
shall address in any such report the need (if any) for further changes or
modifications to this Code.
Adopted this 3/rd/ day
of December, 1998
POLICIES AND PROCEDURES OF
ANALYTIC INVESTORS, INC.
DESIGNED TO DETECT AND PREVENT INSIDER TRADING
Section I. Policy Statement On Insider Trading
A. Introduction
Analytic Investors, Inc. seeks to foster a reputation for integrity and
professionalism. That reputation is a vital business asset. The confidence and
trust placed in us by investors in mutual funds and advisory accounts advised by
Analytic Investors, Inc. is something we value and endeavor to protect. To
further that goal, this Policy Statement proscribes procedures to deter the
misuse of material, nonpublic information in securities transactions.
Trading securities while in possession of material, nonpublic information or
improperly communicating that information to others may expose you to severe
penalties. Criminal sanctions may include a fine of up to $ 1,000,000 and/or
ten years imprisonment. The Securities and Exchange Commission can recover the
profits gained or losses avoided through the violative trading, impose a penalty
of up to three times the illicit windfall and
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an order permanently barring you from the securities industry. Finally, you may
be sued by investors seeking to recover damages for insider trading violations.
Regardless of whether a government inquiry occurs, Analytic Investors, Inc.
views seriously any violation of this Policy Statement. Such violations
constitute grounds for disciplinary sanctions, including immediate dismissal.
B. Scope of the Policy Statement
This Policy Statement is drafted broadly and will be applied and interpreted in
a similar manner. This Policy Statement applies to securities trading and
information handling by directors, officers and employees of Analytic Investors,
Inc. (including spouses, minor children and adult members of their households).
The law of insider trading is continuously evolving and an individual
legitimately may be uncertain about the application of the Policy Statement in a
particular circumstance. Often, your asking a single question can help avoid
disciplinary action or complex legal problems. You should direct any questions
relating to the Policy Statement to Compliance Officer. You also must notify the
Compliance Officer immediately if you have any reason to believe that a
violation of the Policy Statement has occurred or is about to occur.
C. Policy Statement on Insider Trading
The nature and style of the investment process conducted at Analytic Investors,
Inc. does not rely upon nonpublic information, whether material or not.
Proprietary analysis performed on public information is not generally considered
to be inside information, and as such Analytic Investors, Inc. personnel can be
confident that trading for a Client account based on our proprietary analysis
will not be regarded as insider trading. All relevant restrictions in the Code
of Ethics regarding the use of Analytic Investors, Inc.'s proprietary analysis
for personal trading still applies, no person to whom this Policy Statement
--------
applies, including you, may trade, either personally or on behalf of others
(such as for mutual funds and private accounts managed by Analytic Investors,
Inc.), while in possession of material, nonpublic information; nor may such
Analytic Investors, Inc. personnel communicate material, nonpublic information
to others in violation of the law. This section reviews principles important to
the Policy Statement.
1. Material Information
Information is "material" when there is a substantial likelihood that a
reasonable investor would consider it important in making his or her investment
decisions. Generally, this is information whose disclosure will have a
substantial effect on the price of a company's securities. No simple "bright
line" test exists to determine when information is material; assessment of
materiality involve a highly fact-specific inquiry. For this reason, you
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should direct any questions about whether information is material to the
Compliance Officer.
Material information often relates to a company's results and operations
including, for example, dividend changes, earnings results, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
Material information also may relate to the market for a company's securities.
Information about a significant order to purchase or sell securities may, in
some contexts, be deemed material. Similarly, prepublication information
regarding reports in the financial press also may be deemed material. For
example, the Supreme Court upheld the criminal convictions of insider trading
defendants who capitalized on prepublication information about the Wall Street
Journal's "Heard on the Street" column.
2. Nonpublic Information
Information is "public" when it has been disseminated broadly to investors in
the marketplace. Tangible evidence of such dissemination is the best indication
that the information is public. For example, information is public after it has
become available to the general public through a public filing with the SEC or
some other governmental agency, the Dow Jones "tape" or the Wall Street Journal
or some other publication of general circulation, and after sufficient time has
passed so that the information has been disseminated widely.
3. Identifying Inside Information
Before executing any trade for yourself or others, including investment
companies or private accounts managed by Analytic Investors, Inc, you must
determine whether you have access to material, nonpublic information. If you
think that you might have access to material, nonpublic information, you should
take the following steps:
(i.) Report the information and proposed trade immediately to the Compliance
Officer.
(ii.) Do not purchase or sell the securities on behalf of yourself or
others, including investment companies or private accounts managed by
Analytic Investors, Inc.
(iii.) Do not communicate the information inside or outside Analytic
Investors, Inc., other than to the Compliance Officer.
(iv.) After the Compliance Officer has reviewed the issue, the firm will
determine whether the information is material and nonpublic and, if so,
what action the firm should take, if any.
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You should consult with the Compliance Officer before taking any action. This
degree of caution will protect you, your clients and the firm.
4. Contacts with Public Companies
For Analytic Investors, Inc., direct contact with public companies does not
represent an important part of our research efforts. Material non-public
information of a sort that might arrive through direct company contact may
arrive to Analytic Investors, Inc., however, through brokers, research services,
or other market contacts. Employees are advised that such information is not
germane to Analytic Investors, Inc.'s style of investment management. Such
information should not influence trading of Client accounts, should not be used
to conduct personal transactions, and should not be passed on to others.
5. Tender Offers
Tender offers represent a particular concern in the law of insider trading for
two reasons. First, tender offer activity often produces extraordinary gyrations
in the price of the target company's securities. Trading during this time period
is more likely to attract regulatory attention (and produces a disproportionate
percentage of insider trading cases). Second, the SEC has adopted a rule that
expressly forbids trading and "tipping" while in possession of material,
nonpublic information regarding a tender offer received from the tender offer
or, the target company or anyone acting on behalf of either. Analytic Investors,
Inc. employees and others subject to this Policy Statement should exercise
particular caution any time they become aware of nonpublic information relating
to a tender offer.
Section II. Procedures To Implement The Policy Statement On Insider Trading
A. Procedures to Implement Analytic Investors, Inc.'s Policy against Insider
Trading
The following procedures have been established to aid the officers, directors
and employees of Analytic Investors, Inc. in avoiding insider trading, and to
aid Analytic Investors, Inc. in preventing and detecting against insider trading
and imposing appropriate sanctions against violations of the Firm's policies.
Every officer, director and employee of Analytic Investors, Inc. must follow
these procedures or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties. If you have any questions about these
procedures, you should consult the Compliance Officer.
1. Personal Securities Trading
13
<PAGE>
All officers, directors and employees of Analytic Investors, Inc. shall submit
to the Compliance Officer a report of every securities transaction (as defined
by Analytic Investors, Inc.'s Code of Ethics) in which they, their families
(including spouses, minor children and adults living in the same household), and
trusts of which they are trustees or in which they have a beneficial interest
have participated within ten days after such transaction. The report shall
include the name of the security, date of the transaction, quantity, price, and
broker-dealer through which the transaction was effected. The requirement may be
satisfied by sending duplicate confirmations of such trades to the Compliance
Officer.
All officers, directors and employees of Analytic Investors, Inc. shall obtain
clearance from the Compliance Officer or, if unavailable, the alternate Review
Officer prior to effecting any relevant securities transaction (as defined by
Analytic Investors, Inc.'s Code of Ethics) in which they, their families
(including the spouse, minor children and adults living in the same household)
as the officer, director or employee or trusts of which they are trustees or in
which they have a beneficial interest are parties. The Compliance Officer, as
appropriate, shall promptly notify the officer, director or employee of
clearance or denial of clearance to trade. Notification of approval or denial to
trade may be given orally; however, it shall be confirmed in writing within 24
hours of the oral notification. Such notification must be kept strictly
confidential.
2. High-Risk Trading Activities
Certain high-risk trading activities, if used in the management of an Analytic
Investors, Inc. officer, director or employee's personal trading portfolio, are
risky not only because of the nature of the securities transactions themselves,
but also because of the potential that an action necessary to close out the
transactions may become prohibited during the pendency of the transactions.
Examples of such activities include short sales of common stock and trading in
derivative instruments such as option contracts to purchase ("call") or sell
("put") securities at certain predetermined prices. Analytic Investors, Inc.
officers, directors and employees should understand that short sales and trading
in derivative instruments involve special risks - derivative instruments, for
example, ordinarily have greater price volatility than the underlying security.
The fulfillment of the obligations owed by each officer, director and employee
to Analytic Investors, Inc. may heighten those risks. For example, if Analytic
Investors, Inc. becomes aware of material, nonpublic information about the
issuer of the underlying securities, Analytic Investors, Inc. personnel may find
themselves "frozen" in a position in a derivative security. Analytic Investors,
Inc. will not bear any losses resulting in any personal account because of this
Policy Statement and its procedures.
3. Restrictions on Disclosures
Analytic Investors, Inc. officers, directors and employees shall not disclose
any nonpublic information (whether or not it is material) relating to Analytic
Investors, Inc. or its securities transactions to any person outside Analytic
Investors, Inc.(unless such
14
<PAGE>
disclosure has been authorized by Analytic Investors, Inc.). Material, nonpublic
information may not be communicated to anyone, including persons within Analytic
Investors, Inc., except as provided in Section I above. Such information must be
secured. For example, access to files containing material, nonpublic information
and computer files containing such information should be restricted and
conversations containing such information, if appropriate at all, should be
conducted in private (for example, not by cellular telephone, to avoid potential
interception).
Section III. Supervisory Procedures
A. Supervisory Procedures
Analytic Investors, Inc. has assigned the Compliance Officer the primary
responsibility for the implementation and maintenance of Analytic Investors,
Inc.'s policy and procedures against insider trading. Supervisory Procedures
can be divided into two classifications - prevention of insider trading and
detection of insider trading.
1. Prevention of Insider Trading
To prevent insider trading, the Compliance Officer will:
(i.) provide, on a regular basis, an educational program to familiarize
officers, directors and employees with Analytic Investors, Inc.'s policy
and procedures;
(ii.) answer questions regarding Analytic Investors, Inc.'s policy and
procedures;
(iii.) resolve issues of whether information received by an officer, director
or employee of Analytic Investors, Inc. is material and nonpublic and
determine what action, if any, should be taken;
(iv.) review on a regular basis and update as necessary Analytic Investors,
Inc.'s policy and procedures; and
(v.) when it has been determined that an officer, director or employee of
Analytic Investors, Inc. has material, nonpublic information:
1. implement measures to prevent dissemination of such information, and
2. if necessary, restrict officers, directors and employees from trading
the implicated securities, and
(vi.) together with the Chief Investment promptly review, and either approve
or disapprove, in writing, each request of an officer, director or employee
for clearance to trade in specified securities.
15
<PAGE>
2. Detection of Insider Trading
To detect insider trading, the Compliance Officer will:
(i.) review the trading activity reports filed by each officer, director, and
employee;
(ii.) review the trading activity of mutual funds and private accounts managed
by Analytic Investors, Inc.;
(iii.) promptly investigate all reports of any possible violations of Analytic
Investors, Inc.'s Policy and Procedures to Detect and Prevent Insider
Trading; and
(iv.) coordinate the review of such reports with other appropriate officers,
directors or employees of Analytic Investors, Inc.
3. Special Reports to Management
Promptly upon learning of a potential violation of Analytic Investors, Inc.'s
Policy and Procedures to detect and Prevent Insider Trading, the Compliance
Officer, should prepare a written report to management providing full details,
which may include (1) the name of particular securities involved, if any; (2)
the date(s) the Compliance Officer learned of the potential violation and began
investigating; (3) the accounts and individuals involved; (4) actions taken as a
result of the investigation, if any; and (5) recommendations for further action.
4. General Reports to Management and/or the Board of Directors
On an as-needed or periodic basis, Analytic Investors, Inc. .may find it useful
for the Compliance Officer to prepare a written report to the management and/or
the Board of Directors of Analytic Investors, Inc. setting forth some or all of
the following:
(i.) a summary of existing procedures to detect and prevent insider trading;
(ii.) a summary of changes in procedures made in the last year;
(iii.) full details of any investigation since the last report ( either
internal or by a regulatory agency) of any suspected insider trading, the
results of the investigation and a description of any changes in procedures
prompted by such investigation;
(iv.) an evaluation of the current procedures and a description of anticipated
changes in procedures; and a description of Analytic Investors, Inc.'s
continuing educational program regarding insider trading, including the
dates of such programs since the last report to management.
16
<PAGE>
The Compliance Officer must notify or clear his/her own proposed transactions
with the Alternate Review Officer, as defined in the Code of Ethics.
17
<PAGE>
Exhibit 16(c)
BEE & ASSOCIATES INCORPORATED
CODE OF ETHICS AND STATEMENT OF POLICIES
<PAGE>
CODE OF ETHICS AND
STATEMENT OF POLICIES
Table of Contents
-----------------
<TABLE>
<S> <C> <C>
I. STATEMENT OF GENERAL PRINCIPLES........................................... 1
II. DEFINITIONS............................................................... 2
III. PROHIBITIONS.............................................................. 3
IV. EXEMPTIONS................................................................ 4
V. REPORTING................................................................. 5
VI. REVIEW.................................................................... 7
VII. SANCTIONS................................................................. 7
VIII. PROCEDURES FOR PREVENTING THE TRADING ON MATERIAL, NONPUBLIC INFORMATION.. 8
IX. ANNUAL REPORTING AND CERTIFICATION........................................ 11
X. OTHER LEGAL AND REGULATORY MATTERS........................................ 12
XI. MISCELLANEOUS PROVISIONS.................................................. 14
</TABLE>
<PAGE>
I. STATEMENT OF GENERAL PRINCIPLES
The success of Bee & Associates Incorporated (the "Adviser") as an investment
adviser depends upon its reputation for excellence and integrity in the
investment marketplace. All directors, officers and employees of the Adviser
must therefore act in accordance with the highest ethical standards.
A relationship of trust and confidence exists between the Adviser and its
clients. As a result, the interests of the Adviser's clients must always come
first. This means that all actions by directors, officers and employees of the
Adviser which are detrimental, or potentially detrimental, to the Adviser's
clients must be avoided. While this principle extends to a broad range of
actions and practices, it is of particular relevance to any decision relating to
the personal investment activities of directors, officers and employees of the
Adviser since such activities may involve potential conflicts of interest. In
order to fulfill their fiduciary duties, all directors, officers, and employees
of the Adviser must conduct their personal securities transactions in a manner
which does not operate adversely to the interests of the Adviser's clients or
serves their own personal interests ahead of such clients.
In order to ensure that directors, officers, and employees of the Adviser comply
with their fiduciary duties and other standards imposed by federal securities
law upon their personal investment activities, the Adviser has adopted this Code
of Ethics and Statement of Policies (the "Code"). The Code includes specific
provisions with which all covered persons must comply. However, compliance with
these technical provisions alone will not be sufficient to insulate from
scrutiny trades which show a pattern of abuse of the individual's fiduciary
relationships. Therefore, all individuals are expected to abide by the spirit
of the Code and the principles articulated herein.
In the course of fulfilling the responsibilities of their positions, directors,
officers, and employees of the Adviser routinely deal with issuers of
securities, broker/dealers and business associates of the Adviser and its
clients. Such relationships can result in the individual being offered or given
unusual investment opportunities, perquisites, or gifts from persons doing or
seeking business with the Adviser or its clients. All such offers and gifts
which are more than de minimis in value (see Section III.(d) of the Code) should
be declined or returned in order to prevent a situation which might compromise
or appear to compromise a director's, officer's or employee's exercise of
independent and objective judgment on behalf of the Adviser's clients.
This Code establishes policies and procedures which govern certain types of
personal securities transaction by individuals deemed to be "Access Persons" of
the Adviser. In addition, the Code establishes policies and procedures
applicable to all directors, officers, and employees of the Adviser which have
---
been designed to detect and prevent the misuse of material, nonpublic
information in securities transactions and to provide guidance in other legal
and regulatory matters. Compliance with the Code is a condition of employment
and willful or repeated violation of its provisions may be cause for termination
of employment.
II. DEFINITIONS
(a) "Access Person" means (i) any director or officer of the Adviser and
(ii) any employee of the Adviser who, in connection with his or her
regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a Security by an
Account, or whose functions relate to the making of any
recommendations with respect to such purchases or sales.
(b) "Account" means any investment company pension or profit-sharing plan,
or any institutional or private account for which the Adviser is the
investment adviser or sub-adviser.
<PAGE>
(c) "Beneficial Owner" shall mean any director, officer or employee who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect opportunity to profit or share in any profit derived from a
transaction in the subject Securities.
(d) "Compliance Officer" shall mean the officer or employee of the Adviser
designated to receive reports and take certain actions as provided in
this Code.
(e) "Control" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the
result of an official position with such company.
(f) "Investment Personnel" means any Access Persons employed as portfolio
managers, security analysts or security traders, and all support
employees reporting directly to such persons.
(g) "Purchase or sale of a Security" includes the purchase, writing or
sale of an option to purchase or sell that Security, the purchase or
sale of any derivative Security whose value is derived from that
Security, and the purchase or sale of any other Security which has a
substantial economic relationship to that Security (e.g., a Security
issued by a partnership which has a substantial portion of its assets
invested in the Security being purchased or sold).
(h) "Security" shall have the same meaning as that set forth in Section
202(a)(18) of the Investment Advisers Act of 1940 (generally, all
securities).
(i) A Security is "being considered for purchase or sale" when a portfolio
manager is seriously considering the purchase or sale of a Security
for a current Account, or when a security analyst has made and
communicated a recommendation to purchase or sell a Security for an
Account, and with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
Any director, officer or employee who has any questions regarding these
definitions should consult with the Compliance Officer.
III. PROHIBITIONS
NOTE: Subject to a final decision by Adviser management after having reviewed
all of the facts and circumstances relevant to the particular transaction,
individuals covered by the following prohibitions may be required to disgorge
all or a portion of any profit they realize as a result of participating in any
of the prohibited personal securities transactions discussed below. See Section
VII. SANCTIONS of the Code for a more detailed discussion of this matter.
Prohibitions Applicable To All Access Persons
- ---------------------------------------------
(a) Prohibition Against Certain Securities Transactions. No Access Person
---------------------------------------------------
shall purchase or sell, directly or indirectly, any Security in which
he or she has, or by reason of such transaction acquires, any direct
or indirect Beneficial Ownership and which he or she knows or should
have known at the time of such purchase or sale:
<PAGE>
(1) is being purchased or sold by an Account; or
(2) is being considered for purchase or sale by an Account.
(b) Prohibitions Against Participating in an Initial Public Offering. All
----------------------------------------------------------------
Access Persons are prohibited from acquiring any Security in an
initial public offering.
(c) Limitations on Gifts. All Access Persons are prohibited from
--------------------
receiving on an annual basis any gifts or other things of value from
any person or entity that does business with or on behalf of the
Adviser or the Investment Companies/Accounts which in total could
reasonably be valued above $100. However, this policy does not apply
to customary business meals or entertainment, or promotional items
(e.g., pens, mugs, caps, T-shirts, etc.) which are consistent with
customary business practices in the industry.
(d) Limitations on Serving on Other Companies' Boards of Directors. No
--------------------------------------------------------------
Access Person shall become a member of a board of directors of a
publicly traded company except with the written consent of the
Compliance Officer upon his determination that such service would be
consistent with the interests of the Accounts. No Access Person who is
a director of such a company shall engage in any personal securities
transaction involving the securities of such company, unless the
Access Person has received written approval to trade from the
company's management, in light of their procedures designed to prevent
the misuse of material, nonpublic information by company insiders.
Prohibitions Applicable Only To Investment Personnel
- ----------------------------------------------------
(e) Prohibition Against Certain Securities Transactions. All Investment
---------------------------------------------------
Personnel are prohibited from purchasing or selling any Security (or
equivalent Security) within 7 calendar days before or after an Account
that he or she manages purchases or sells that Security.
(f) Prohibition Against Short-Swing Trading. All Investment Personnel are
---------------------------------------
prohibited from profiting in the purchase and sale, or sale and
purchase, of the same (or equivalent) Securities within 60 calendar
days. This prohibition shall not apply to exchange-traded stock
options that are purchased for the purpose of establishing a bona fide
position hedge on Securities held in excess of 60 calendar days, or to
options on stock indices which are composed of 100 or more securities.
(g) Limitations on Participation in Private Placements. All Investment
--------------------------------------------------
Personnel are prohibited from acquiring any Security in a private
placement without prior written approval of the Compliance Officer. No
Investment Personnel who own a Security acquired in a private
transaction shall be involved in the consideration of an investment in
the issuer by an Account.
(h) Limitations on Improper Allocation of Brokerage. All Investment
-----------------------------------------------
Personnel must disclose any family member(s) employed in the
securities business who might be in a position to benefit as a result
of the trading activity of the Accounts. It is prohibited for
Investment Personnel to influence the allocation of brokerage for
direct or indirect personal or familial benefit.
(i) Required Disclosure of Securities Holdings. When recommending a
------------------------------------------
Security for purchase or sale by an Account, Investment Personnel must
disclose in writing to the Compliance Officer any ownership of a
Security of the issuer, or any present or proposed business
relationship with
-3-
<PAGE>
such issuer. The Investment Personnel's holdings/relationship will
then be reviewed to determine whether it presents a conflict of
interest that should be addressed (e.g., requiring such person to sell
their holdings in the Security) prior to the Adviser effecting a
purchase or sale for the Account.
IV. EXEMPTIONS
(a) Exempted Securities. The prohibitions of Section III of the code
-------------------
shall not apply to the following securities:
(1) shares of registered open-end investment companies,
(2) securities issued or guaranteed as to principal or interest by
the Government of the United States or an agency or
instrumentality thereof (including all short-term debt securities
which are "government securities" within the meaning of Section
2(a)(16) of the Investment Company Act of 1940), and
(3) banker's acceptances, bank certificates of deposit, commercial
paper and other money market instruments.
(b) The prohibitions of Section III. of the Code shall not apply to the
following transactions:
(1) purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
(2) purchases or sales which are non-volitional on the part of the
Access Person, such as Securities acquired as a result of a spin-
off of an entity from a company whose Securities are owned by an
Access Person, or the involuntary sale of Securities due to a
merger or as the result of a company exercising a call provision
on its outstanding debt;
(3) purchases which are part of an automatic dividend reinvestment
plan;
(4) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its Securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired; and
(5) any Securities transaction, or series of related transactions,
involving 500 shares or less in the aggregate, if the issuer has
a market capitalization (outstanding shares multiplied by the
current price per share) greater than $1 billion.
V. REPORTING
(a) Within ten days of commencement of employment with the Adviser (or if
not an employee, of otherwise becoming an Access Person to the
Adviser), all Access Persons shall submit a written report to the
Compliance Officer disclosing (i) the title, number of shares and
principal amount of all of their Security holdings in which they had
any direct or indirect Beneficial Ownership when they became Access
Persons, (ii) the name of any broker, dealer
-4-
<PAGE>
or bank with whom the Access Persons maintained an account in which
any securities were held for the direct or indirect benefit of the
Access Persons when they became Access Persons, and (iii) the date
that the report is submitted by the Access Persons. All Access Persons
shall update this disclosure on an annual basis.
(b) All Access Persons shall direct their brokers to supply the Compliance
Officer, on a timely basis, duplicate copies of confirmations of all
personal securities transactions and copies of all statements for all
Securities accounts.
(c) Whether or not one of the exemptions listed in Section IV. of the Code
applies, each Access Person shall file with the Compliance Officer a
written report (see Appendix B) containing the information described
in Section V.(d) of the Code with respect to each transaction in any
Security (including exempt securities) in which such Access Person
has, or by reason of such transaction acquires, any direct or indirect
Beneficial Ownership in the Security; provided, however, that an
-------- -------
Access Person shall not be required to make a report with respect to
any transaction effected for any account over which he or she does not
have any direct or indirect influence or control. A report may
contain a statement that the report shall not be construed as an
admission by the Access Person that he or she has any direct or
indirect Beneficial Ownership in the Security to which the report
relates.
(d) A report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates
was effected, and shall contain the following information:
(1) the date of the transaction, the title of and the number of
shares, and the principal amount of each Security involved;
(2) the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(3) the price at which the transaction was effected; and
(4) the name of the broker, dealer or bank with or through whom the
transaction was effected.
(5) the date that the report is submitted by the Access Person.
Any report concerning a purchase or sale in which the Person relies
upon one of the exemptions provided in Section IV. of the Code shall
contain a brief statement of the exemption relied upon and the
circumstances of the transaction.
(e) The reporting requirements of Sections V.(c) and V.(d) of the Code may
be satisfied by the Compliance Officer receiving all confirmations of
Security transactions and/or periodic statements for an Access
Person's Securities accounts. Confirmations of Security transactions
and/or Security account statements received by the Compliance Officer
will be distributed quarterly to Access Persons for their review to
ensure that such confirmations/statements include all Security
transactions required to be reported under this Code.
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<PAGE>
(f) An Access Person will be deemed to have participated in, and must
report under this Code, any Securities transactions participated in
by:
(1) The person's spouse;
(2) The person's minor children;
(3) Any other relatives sharing the person's household;
(4) A trust in which the person has a beneficial interest, unless
such person has no direct or indirect control over the trust;
(5) A trust as to which the person is a trustee;
(6) A revocable trust as to which the person is a settler; or
(7) A partnership of which the person is a partner (including most
investment clubs) unless the person has no direct or indirect
control over the partnership.
VI. REVIEW
The Compliance Officer shall review or supervise the review of the personal
Securities transactions reported pursuant to Section V. of the Code. As part of
that review, each such reported Securities transaction shall be compared against
the trading activity of the Accounts to determine whether a violation of Section
III. of the Code may have occurred. If the Compliance Officer determines that a
violation may have occurred, he or she shall promptly submit the pertinent
information regarding the transaction to the Board of Directors, who shall
evaluate whether a violation of the Code has occurred, taking into account all
the exemptions provided under Section IV. of the Code, and if so, whether such
violation is material. The Board will consider all relevant facts and
circumstances surrounding the transaction prior to making its determination. In
addition, before making any determination that a material violation has
occurred, Board shall give the person involved an opportunity to supply
additional information regarding the transaction in question. If upon review
the Board is uncertain as to whether a material violation of the Code has
occurred, or if the Access Person disagrees with the determination made by the
Board, the matter will be submitted to the Adviser's legal counsel for its
review.
VII. SANCTIONS
If a final determination is made that a material violation of this Code has
occurred, the Board may require the Access Person to disgorge to the appropriate
Account or, if not related to a particular Account, a charitable organization,
all or a portion of the profits resulting from the prohibited transaction. [The
Compliance Officer shall provide a written report of the determination to the
Board of Directors of the Adviser for such further action and sanctions as the
Board deems appropriate, which sanctions may in the Board's discretion include,
among other things, imposition of a monetary penalty and/or censure, suspension
or termination of the Access Person. A copy of the report shall also be
provided to the Board of Directors/Trustees of any investment company for which
the Adviser is the investment adviser or sub-adviser which is affected by the
reported transaction.
-6-
<PAGE>
VIII. PROCEDURES FOR PREVENTING TRADING ON MATERIAL, NONPUBLIC INFORMATION
Introduction
- ------------
In addition to the prohibitions set forth in Section III. of the Code which
are applicable only to Access Persons of the Adviser, the Adviser forbids any
---
director, officer or employee (including spouses, minor children and adults
living in the same household as the director, officer or employee), either
personally or on behalf of others (such as Accounts managed by the Adviser) from
trading on material, nonpublic information or communicating material, nonpublic
information to others in violation of the securities laws. This conduct is
frequently referred to as "insider trading." /1/ For a discussion of what is
deemed to be "inside" information and the legal consequences of "insider"
trading see Appendix I. The Adviser's policy against insider trading applies to
every director, officer and employee and extends to activities within and
outside their duties at the Adviser. Any questions regarding the Adviser's
policies and procedures should be referred to the Compliance Officer.
The following procedures have been established to aid the directors,
officers and employees of the Adviser in avoiding insider trading, and to aid
the Adviser in preventing, detecting and imposing sanctions against insider
trading. Failure to comply with these procedures may result in serious
sanctions by the Adviser, including dismissal for cause. If you have any
questions about these procedures, you should consult the Compliance Officer.
(a) Contacts With Public Companies
------------------------------
For the Adviser, contacts with public companies represent an important
part of its research efforts. The Adviser may make investment
decisions on the basis of the firm's conclusions formed through such
contacts and analysis of publicly-available information. Difficult
legal issues arise, however, when, in the course of these contacts, a
director, officer or employee of the Adviser becomes aware of
material, nonpublic information. This could happen, for example, if a
company's Chief Financial Officer prematurely discloses quarterly
results to an analyst or an investor relations representative makes a
selective disclosure of adverse news to a handful of investors. In
such situations, the Adviser must make a judgment as to its further
conduct. To protect the Adviser and its Accounts, all directors,
officers and employees of the Adviser should contact the Compliance
Officer immediately if they believe that they may have received
material, nonpublic information.
(b) Identifying Inside Information in the Context of Personal Securities
--------------------------------------------------------------------
Trading
-------
Before trading for yourself or others, including Accounts managed by
the Adviser, in the securities of a company about which you may have
potential inside information, whether obtained through the Adviser's
activities or not, ask yourself the following questions:
(1) Is the information material? Is there a substantial likelihood
that a reasonable investor would consider this information
important in making his or her decision to
________________
/1/ For a discussion of what is deemed to be "inside" information and the legal
consequences of "insider" trading see Appendix I.
-7-
<PAGE>
buy, hold or sell stock? Is it reasonably certain that this
information would substantially affect the market price of the
securities if it were generally disclosed?
(2) Is the information nonpublic? To whom has this information been
provided? Has the information been effectively communicated to
the marketplace by being filed with the U.S. Securities and
Exchange Commission or published in Reuters, The Wall Street
------------------------
Journal or other such publications?
-------
(3) If your securities transactions became the subject of scrutiny,
how would they be viewed after-the-fact with the benefit of
hindsight? As a result, before engaging in any transaction, you
should carefully consider how regulators and others might view
your transaction in hindsight.
If, after consideration of the above, you believe that the information is
material and nonpublic, or if you have any doubt as to whether the
information is material and nonpublic, you must take the following steps:
----
(4) Report the matter immediately to the Compliance Officer,
(5) Refrain from purchasing or selling the Securities on behalf of
yourself or others, including Accounts managed by the Adviser,
(6) Refrain from communicating the information inside or outside of
the Adviser, other than to the Compliance Officer, and
(7) After the Compliance Officer has reviewed the issue, you will be
instructed to continue the prohibitions against trading and
communication, or you will be allowed to trade and communicate
the information.
(c) Restricting Access to Material, Nonpublic Information
-----------------------------------------------------
(1) General Procedures
------------------
Material, nonpublic information in the possession of a director,
officer or employee of the Adviser may not be communicated to
anyone, including persons within the Adviser except to the
Compliance Officer as provided in Section VIII.(b) of the Code or
as is necessary for individuals to perform their duties at the
Adviser. In addition, care should be taken so that such
information is secure. For example, files containing material,
nonpublic information should be maintained in a secure manner;
access to computer files containing material, nonpublic
information should be restricted.
(2) Tender Offers
-------------
Tender offers represent a particular concern in the law of
insider trading for two reasons. First, tender offer activity
often produces extraordinary gyrations in the price of the target
company's securities. Trading during this time period is more
likely to attract regulatory attention (and produces a
disproportionate percentage of insider trading cases). Second,
the U.S. Securities and Exchange Commission has
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<PAGE>
adopted a rule which expressly forbids trading and "tipping"
while in possession of material, nonpublic information regarding
a tender offer received from the tender offeror, the target
company or anyone acting on behalf of either. Officers, directors
and employees of the Adviser should exercise particular caution
any time they become aware of nonpublic information relating to a
tender offer.
(d) Procedures Designed to Prevent and Detect Insider Trading
---------------------------------------------------------
The following procedures are designed to prevent and detect insider
trading within the Adviser or by the Adviser's directors, officers and
employees. To prevent and detect insider trading the Compliance
Officer will:
(1) Answer questions from directors, officers and employees of the
Adviser relating to the Adviser's policies and procedures.
(2) Resolve issues of whether information received by directors,
officers and employees of the Adviser is material and nonpublic.
(3) Review on an annual basis and update as necessary the Adviser's
policies and procedures to reflect changes in rules, regulations
and case law.
(4) When it has been determined that a director, officer or employee
of the Adviser has material, nonpublic information on a company,
the Compliance Officer will place the company on a "Restricted
List" that will be maintained by the Compliance Officer.
While a company is on the Restricted List, no director, officer
or employee shall effect any transaction in the Securities of the
Company, either for their own accounts or for any Accounts
managed by the Adviser. The Compliance Officer will be
responsible for removing a particular company from the Restricted
List after having received permission for such action from
-----
Adviser management, and will be responsible for making available
the Restricted List and any updates to it to all Investment
Personnel. The Restricted List is highly confidential and shall,
under no circumstances, be discussed with or disseminated to
anyone outside of the Adviser.
Any publicly traded company for which a director, officer or
employee of the Adviser is a director shall be placed on the
Restricted List and shall remain on the list until their
directorship is terminated and the director, officer or employee
of the Adviser ceases to be an insider to the company. While a
company is on the Restricted List, each of the Adviser's
directors, officers and employees who is a member of the board of
directors of a publicly traded company may engage in personal
securities transactions involving the Securities of such company,
subject to pre-clearance that will be conditioned upon obtaining
documented approval to trade from such company's management, in
light of their procedures designed to prevent the misuse of
material, nonpublic information by company insiders.
(5) Promptly, upon learning of a potential violation of the Adviser's
policies and procedures on insider trading, prepare a written
report to Adviser management with full details about the
potential violation and recommendations for further action.
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(6) Provide such educational programs to familiarize directors,
officers, and employees of the Adviser with the Adviser's
policies and procedures on insider trading, misuse of material,
nonpublic information, reporting requirements for personal
securities transactions and related matters, as the Compliance
Officer deems necessary.
IX. ANNUAL REPORTING AND CERTIFICATION
(a) On an annual basis, the Compliance Officer should provide a written
report to the President and the Board of Directors of the Adviser
discussing:
(1) The Adviser's existing procedures to detect and prevent
violations of the Code, its other compliance procedures, and any
recommendations for improvement,
(2) Any investigation, either internal or by a regulatory agency, of
any possible violations of the Code, the resolution of such
investigations and the steps taken to prevent further violations,
and
(3) The Adviser's continuing efforts to educate all directors,
officers and employees of the Adviser regarding the Code,
including the dates of any such educational programs presented
since the last report. A copy of the report shall also be
provided to the Board of Directors/Trustees of each investment
company for which the Adviser is the investment adviser or sub-
adviser.
(b) On an annual basis, all directors, officers and employees of the
Adviser are required to certify in writing that they have read and
understand the Code of Ethics and Statement of Policies and recognize
that they are subject thereto. In addition, all such persons are
required to certify annually that they have complied with the
requirements of the Code and that they have reported all personal
securities transactions required to be reported pursuant to the Code
(see Appendix C). If a director, officer or employee of the Adviser
has any questions pertaining to their responsibilities under the Code,
they should discuss them with the Compliance Officer prior to
completing their annual certification statement.
X. OTHER LEGAL AND REGULATORY MATTERS
(a) Confidentiality. All account information concerning the Adviser's
---------------
clients (e.g., name, account size, specific securities held,
securities trades, etc.) is absolutely confidential. Therefore,
access to Account information is limited to those individuals who must
have such access to perform their duties, and such information shall
not be communicated to any other person either within or outside the
Adviser, except with the specific consent of the client. The
confidentiality of all Account information is critical to the
Adviser's reputation for excellence and integrity and maintenance of
the Adviser's competitive position, and any disclosure of confidential
information can be expected to result in serious sanctions by the
Adviser, including possible dismissal for cause.
(b) Bankruptcy/Criminal Offenses. The Adviser is required to notify
----------------------------
regulatory organizations when certain events occur regarding its
directors, officers and/or employees. Accordingly
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the Compliance Officer must be notified if any of the following occur
with respect to a director, officer or employee:
. Personal bankruptcy,
. The bankruptcy of a corporation in which any director, officer or
employee owns 10% or more of the securities, or
. Arrest, arraignment, indictment or conviction for, or the entry
of a guilty or no contest plea for, any criminal offense (other
than minor traffic violations).
(c) Receipt of Legal Documents. On occasion, employees are served with
--------------------------
legal documents (e.g., a subpoena) for the Adviser. Upon receipt of
legal documents, the Adviser's Compliance Officer or legal counsel is
to be notified immediately.
(d) Retention of Outside Counsel. Directors, officers and employees may
----------------------------
not retain the services of outside counsel under circumstances such
that the Adviser would be obligated to pay legal fees unless the
Compliance Officer has granted approval for retention of such counsel
in advance.
(e) Contact with Industry Regulators. In the event of an inquiry from an
--------------------------------
industry regulator-whether via the telephone, mail or personal
visit-directors, officers and employees must contact the Adviser's
Compliance Officer or legal counsel as soon as possible for
instructions.
(f) Political Contributions. The use of funds or assets of the Adviser
-----------------------
for any unlawful or improper purpose is prohibited. This prohibition
includes any contribution to any public official, political candidate
or political entity, except as may be expressly permitted by law.
This shall also preclude unlawful contributions through consultants,
customers or other third parties, including payments where directors,
officers or employees of the Adviser know or have reason to believe
that payments made to such other third parties will be used as
unlawful contributions.
The above prohibitions relate only to the use of corporate funds and
in no way are intended to discourage directors, officers or employees
from making personal contributions to political candidates or parties
of their choice. No such individual contribution will be reimbursed
by the Adviser in any manner, directly or indirectly.
(g) Business Conduct. It is the policy of the Adviser to conduct business
----------------
in accordance with the applicable laws and regulations of the United
States and all other individual states and countries in which the
Adviser operates or has any significant contacts. Unethical business
practices will subject directors, officers and employees to
appropriate disciplinary action, including dismissal for cause if
warranted, and may result in prosecution for violating federal, state
or foreign laws.
No payment (cash or otherwise) can be made (directly or indirectly) to
any employee, official or representative of any domestic or foreign
governmental agency, instrumentality, party, or candidate thereof, for
the purpose of influencing any act, omission or decision by such
person or entity.
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The Adviser's books, records and accounts must be maintained in
sufficient detail as to accurately reflect the transactions and
dispositions of its assets. No undisclosed or unrecorded fund or
asset of the Adviser may be established for any purpose.
Any director, officer or employee with questions about or knowledge of
violations of these policies must contact the Compliance Officer or
legal counsel.
XI MISCELLANEOUS PROVISIONS
(a) The Adviser shall maintain records in the manner and to the extent set
forth below, and make such records available for examination by
representatives of the U.S. Securities and Exchange Commission:
(1) A copy of this Code and any other code which is, or at any time
within in the past five years has been, in effect shall be
preserved in an easily accessible place;
(2) A record of any violation of the Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
(3) A copy of each report made by an Access Person pursuant to the
Code shall be preserved for a period of not less than five years
from the end of the fiscal year in which it is made, the first
two years in an easily accessible place; and
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to the Code shall be
maintained in an easily accessible place.
(b) All reports of Securities transactions and any other information filed
with the Adviser or furnished to any person pursuant to the Code shall
be treated as confidential, but are subject to review as provided
herein and by representatives of the U.S. Securities and Exchange
Commission or any other regulatory or self-regulatory organization to
the extent required by law or regulation.
(c) The directors of the Adviser may from time to time adopt such
interpretations of the Code and such exceptions to provisions of the
Code as they deem appropriate.
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Exhibit 16 (d)
SECTION S
Code of Ethics
Gabelli Funds, LLC
GAMCO Investors, Inc.
Gabelli & Company, Inc.
Gabelli Advisers, Inc.
Gabelli Fixed Income LLC
Each Registered Investment Company
or series thereof (each of which
is considered to be a Company
for this purpose) for which any
of the Companies listed above
presently or hereafter provides
investment advisory or principal
underwriting services, other than a
money market fund or a fund
that does not invest in Securities.
Introduction
This Code of Ethics establishes rules of conduct for persons who are
associated with the companies named above or with the registered investment
companies for which such companies provide investment advisory or principal
underwriter services. The Code governs their personal investment and other
investment-related activities.
The basic rule is very simple: put the client's interests first. The rest
of the rules elaborate this principle. Some of the rules are imposed
specifically by law. For example, the laws that govern investment advisers
specifically prohibit fraudulent activity, making statements that are not true
or that are misleading or omit something that is significant in the context and
engaging in manipulative practices. These are general words, of course, and over
the years the courts, the regulators and investment advisers have interpreted
these words and established codes of conduct for their employees and others who
have access to their investment decisions and trading activities. Indeed, the
rules obligate investment advisers to adopt written rules that are reasonably
designed to prevent the illegal activities described above and must follow
procedures that will enable them to prevent such activities.
This Code is intended to assist the companies in fulfilling their
obligations under the law. The first part lays out who the Code applies to, the
second part deals with personal investment activities, the third part deals with
other sensitive business practices, and subsequent parts deal with reporting and
administrative procedures.
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The Code is very important to the companies and their employees. Violations
can not only cause the companies embarrassment, loss of business, legal
restrictions, fines and other punishments but for employees can lead to
demotion, suspension, firing, ejection from the securities business and very
large fines.
I. Applicability
A. The Code applies to each of the following:
1. The Companies named or described at the top of page one of the
Code and all entities that are under common management with these
Companies or otherwise agree to be subject to the Code
("Affiliates"). A listing of the Affiliates, which is
periodically updated, is attached as Exhibit A.
2. Any officer, director or employee of any Company, Affiliate or
Fund Client (as defined below) whose job regularly involves him
in the investment process. This includes the formulation and
making of investment recommendations and decisions, the purchase
and sale of securities for clients and the utilization of
information about investment recommendations, decisions and
trades. Due to the manner in which the Companies and the
Affiliates conduct their business, every employee should assume
that he is subject to the Code unless the Compliance Officer
specifies otherwise.
3. With respect to all of the Companies, Affiliates and Fund Clients
except Gabelli & Company, Inc., any natural person who controls
any of the Companies, Affiliates or Fund Clients and who obtains
information regarding the Companies' or the Affiliates'
investment recommendations or decisions. However, a person whose
control arises only as a result of his official position with
such entity is excluded. Disinterested directors of Fund Clients,
for example, are excluded from coverage under this item.
4. With respect to all of the Companies and Fund Clients except
Gabelli & Company, Inc., any director, officer, general partner
or person performing a similar function even if he has no
knowledge of and is not involved in the investment process.
Disinterested directors of Fund Clients and independent directors
of Affiliates are included in coverage under this item.
5. As an exception, the Code does not apply to any director, officer
or employee of any Fund Client (such as certain of The Gabelli
Westwood Funds) with respect to which the Companies' services do
not involve the formulation or making of investment
recommendations or decisions or the execution of portfolio
transactions if that person is also a director, officer
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or employee of any entity that does perform such services (such
as Westwood Management Corp.). These individuals are covered by
codes of ethics adopted by such entities.
B. Definitions
1. Access Persons. The Companies and the persons described in items
(A)2 and (A)3 above other than those excluded by item (A)5 above.
2. Access Person Account. Includes all advisory, brokerage, trust or
other accounts or forms of direct beneficial ownership in which
one or more Access Persons and/or one or more members of an
Access Person's immediate family have a substantial proportionate
economic interest. Immediate family includes an Access Person's
spouse and minor children living with the Access Person. A
substantial proportionate economic interest will generally be 10%
of the equity in the account in the case of any single Access
Person and 25% of the equity in the account in the case of all
Access Persons in the aggregate, whichever is first applicable.
Investment partnerships and similar indirect means of ownership
other than registered open-end investment companies are also
treated as accounts.
As an exception, accounts in which one or more Access Persons
and/or their immediate family have a substantial proportionate
interest which are maintained with persons who have no
affiliation with the Companies and with respect to which no
Access Person has, in the judgment of the Compliance Officer
after reviewing the terms and circumstances, any direct or
indirect influence or control over the investment or portfolio
execution process are not Access Person Accounts.
As a further exception, subject to the provisions of Article
II(I)7, bona fide market making accounts of Gabelli & Company,
Inc. are not Access Person Accounts.
As a further exception, subject to the provisions of Article
II(I)7, bona fide error accounts of the Companies and the
Affiliates are not Access Person Accounts.
3. Associate Portfolio Managers. Access Persons who are engaged in
securities research and analysis for designated Clients or are
responsible for investment recommendations for designated Clients
but who are not principally responsible for investment decisions
with respect to any Client accounts.
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4. Clients. Investment advisory accounts maintained with any of the
Companies or Affiliates by any person, other than Access Person
Accounts. However, Fund Clients covered by item (A)(5) above are
considered Client accounts only with respect to employees
specifically identified by the Compliance Officer as having
regular information regarding investment recommendations or
decisions or portfolio transactions for such Fund Clients.
5. Companies. The companies named or described at the top of page
one of the Code.
6. Compliance Officer. The persons designated as the compliance
officers of the Companies.
7. Covered Persons. The Companies, the Access Persons and the
persons described in item (A)4 above.
8. Fund Clients. Clients that are registered investment companies or
series thereof.
9. Portfolio Managers. Access Persons who are principally
responsible for investment decisions with respect to any Client
accounts.
10. Security. Any financial instrument treated as a security for
investment purposes and any related instrument such as a futures,
forward or swap contract entered into with respect to one or more
securities, a basket of or an index of securities or components
of securities. However, the term security does not include
securities issued by the Government of the United States,
bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements, or shares of registered open-end
investment companies.
II. Restrictions on Personal Investing Activities
A. Basic Restriction on Investing Activities
If a purchase or sale order is pending or under active consideration
for any Client account by any Company or Affiliate, neither the same
Security nor any related Security (such as an option, warrant or
convertible security) may be bought or sold for any Access Person
Account.
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<PAGE>
B. Initial Public Offerings
No Security or related Security may be acquired in an initial public
offering for any Access Person Account.
C. Blackout Period
No Security or related Security may be bought or sold for the account
of any Portfolio Manager or Associate Portfolio Manager during the
period commencing seven (7) days prior to and ending seven (7)
calendar days after the purchase or sale (or entry of an order for the
purchase or sale) of that Security or any related Security for the
account of any Client with respect to which such person has been
designated a Portfolio Manager or Associate Portfolio Manager, unless
the Client account receives at least as good a price as the account of
the Portfolio Manager or Associate Portfolio Manager and the
Compliance Officer determines under the circumstances that the Client
account has not been adversely affected (including with respect to the
amount of such Security able to be bought by the Client account) by
the transaction for the account of the Portfolio Manager or Associate
Portfolio Manager.
D. Short-term Trading
No Security or related Security may, within a 60 day period, be bought
and sold or sold and bought at a profit for any Access Person Account
if the Security or related Security was held at any time during that
period in any Client account.
E. Exempt Transactions
Participation on an ongoing basis in an issuer's dividend reinvestment
or stock purchase plan, participation in any transaction over which no
Access Person had any direct or indirect influence or control and
involuntary transactions (such as mergers, inheritances, gifts, etc.)
are exempt from the restrictions set forth in paragraphs (A) and (C)
above without case by case preclearance under paragraph (G) below.
F. Permitted Exceptions
Purchases and sales of the following Securities for Access Person
Accounts are exempt from the restrictions set forth in paragraphs A, C
and D above if such purchases and sales comply with the pre-clearance
requirements of paragraph (G) below:
1. Non-convertible fixed income Securities rated at least "A";
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2. Equity Securities of a class having a market capitalization in
excess of $1 billion;
3. Equity Securities of a class having a market capitalization in
excess of $500 million if the transaction in question and the
aggregate amount of such Securities and any related Securities
purchased and sold for the Access Person Account in question
during the preceding 60 days does not exceed 100 shares;
4. Municipal Securities; and
5. Securities transactions effected for federal, state or local
income tax purposes that are identified to the Compliance Officer
at the time as being effected for such purposes.
In addition, the exercise of rights that were received pro rata with
other security holders is exempt if the pre-clearance procedures are
satisfied.
G. Pre-Clearance of Personal Securities Transactions
No Security may be bought or sold for an Access Person Account unless
(i) the Access Person obtains prior approval from the Compliance
Officer or, in the absence of the Compliance Officer, from the general
counsel of Gabelli Asset Management Inc.; (ii) the approved
transaction is completed on the same day approval is received; and
(iii) the Compliance Officer or the general counsel does not rescind
such approval prior to execution of the transaction (See paragraph I
below for details of the Pre-Clearance Process.)
H. Private Placements
The Compliance Officer will not approve purchases or sale of
Securities that are not publicly traded, unless the Access Person
provides full details of the proposed transaction (including written
certification that the investment opportunity did not arise by virtue
of such person's activities on behalf of any Client) and the
Compliance Officer concludes, after consultation with one or more of
the relevant Portfolio Managers, that the Companies would have no
foreseeable interest in investing in such Security or any related
Security for the account of any Client.
I. Pre-Clearance Process
1. No Securities may be purchased or sold for any Access Person
Account unless the particular transaction has been approved in
writing by the Compliance Officer or, in his absence, the general
counsel of Gabelli Asset Management Inc. The Compliance Officer
shall review not less frequently than weekly reports from the
trading desk (or, if applicable,
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<PAGE>
confirmations from brokers) to assure that all transactions
effected for Access Person Accounts are effected in compliance
with this Code.
2. No Securities may be purchased or sold for any Access Person
Account other than through the trading desk of Gabelli & Company,
Inc., unless express permission is granted by the Compliance
Officer. Such permission may be granted only on the condition
that the third party broker supply the Compliance Officer, on a
timely basis, duplicate copies of confirmations of all personal
Securities transactions for such Access Person in the accounts
maintained with such third party broker and copies of periodic
statements for all such accounts.
3. A Trading Approval Form, attached as Exhibit B, must be completed
and submitted to the Compliance Officer for approval prior to
entry of an order.
4. After reviewing the proposed trade, the level of potential
investment interest on behalf of Clients in the Security in
question and the Companies' restricted lists, the Compliance
Officer shall approve (or disapprove) a trading order on behalf
of an Access Person as expeditiously as possible. The Compliance
Officer will generally approve transactions described in
paragraph (F) above unless the Security in question or a related
security is on the Restricted List or the Compliance Officer
believes for any other reason that the Access Person Account
should not trade in such Security at such time.
5. Once an Access Person's Trading Approval Form is approved, the
form must be forwarded to the trading desk (or, if a third party
broker is permitted, to the Compliance Officer) for execution on
the same day. If the Access Person's trading order request is not
approved, or is not executed on the same day it is approved, the
clearance lapses although such trading order request maybe
resubmitted at a later date.
6. In the absence of the Compliance Officer, an Access Person may
submit his or her Trading Approval Form to the general counsel of
Gabelli Asset Management Inc. Trading approval for the Compliance
Officer must be obtained from the general counsel, and trading
approval for the general counsel must be obtained from the
Compliance Officer. In no case will the Trading Desk accept an
order for an Access Person Account unless it is accompanied by a
signed Trading Approval Form.
7. The Compliance Officer shall review all Trading Approval Forms,
all initial, quarterly and annual disclosure certifications and
the trading activities on behalf of all Client accounts with a
view to ensuring that all Covered Persons are complying with the
spirit as well as the detailed
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requirements of this Code. The Compliance Officer will review all
transactions in the market making accounts of Gabelli & Company,
Inc. and the error accounts of the Companies and the Affiliates
in order to ensure that such transactions are bona fide market
making or error transactions or are conducted in accordance with
the requirements of this Article II.
III. Other Investment-Related Restrictions
A. Gifts
No Access Person shall accept any gift or other item of more than $100
in value from any person or entity that does business with or on
behalf of any Client.
B. Service As a Director
No Access Person shall commence service on the Board of Directors of a
publicly traded company or any company in which any Client account has
an interest without prior authorization from the Compliance Committee
based upon a determination that the Board service would not be
inconsistent with the interests of the Clients. The Compliance
Committee shall include the senior Compliance Officer of Gabelli Asset
Management Inc., the general counsel of Gabelli Asset Management Inc.
and at least two of the senior executives from among the Companies.
IV. Reports and Additional Compliance Procedures
A. Every Covered Person, except independent directors of Affiliates of
the Companies, must submit a report (a form of which is appended as
Exhibit C) containing the information set forth in paragraph (B) below
with respect to transactions in any Security in which such Covered
Person has or by reason of such transaction acquires, any direct or
indirect beneficial ownership (as defined in Exhibit D) in the
Security, and with respect to any account established by the Covered
Person in which any Securities were held for the direct or indirect
benefit of the Covered Person; provided, however, that:
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1. a Covered Person who is required to make reports only because he
is a director of one of the Fund Clients and who is a
"disinterested" director thereof need not make a report with
respect to any transactions other than those where he knew or
should have known in the course of his duties as a director that
any Fund Client of which he is a director has made or makes a
purchase or sale of the same or a related Security within 15 days
before or after the purchase or sale of such Security or related
Security by such director.
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2. a Covered Person need not make a report with respect to any
transaction effected for, and Securities held in, any account
over which such person does not have any direct or indirect
influence or control; and
3. a Covered Person will be deemed to have complied with the
requirements of this Article IV insofar as the Compliance Officer
receives in a timely fashion duplicate monthly or quarterly
brokerage statements or transaction confirmations on which all
transactions required to be reported hereunder are described.
B. A Covered Person must submit the report required by this Article to
the Compliance Officer no later than 10 days after the end of the
calendar quarter in which the transaction or account to which the
report relates was effected or established, and the report must
contain the date that the report is submitted.
1. This report must contain the following information with respect
to transactions:
a. The date of the transaction, the title and number of shares
and the principal amount of each Security involved;
b. The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. The price at which the transaction was effected; and
d. The name of the broker, dealer or bank with or through whom
the transaction was effected.
2. This report must contain the following information with respect
to accounts established:
a. The name of the broker, dealer or bank with whom the account
was established; and
b. The date the account was established.
C. Any report submitted to comply with the requirements of this Article
IV may contain a statement that the report shall not be construed as
an admission by the person making such report that he has any direct
or indirect beneficial ownership in the Security to which the report
relates. A person need not make any report under this Article IV with
respect to transactions effected for, and Securities held in, any
account over which the person has no direct or indirect influence or
control
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D. No later than 10 days after beginning employment with any of the
Companies or Affiliates or otherwise becoming a Covered Person, each
Covered Person (except for a "disinterested" director of the Fund
Client who is required to submit reports solely by reason of being
such a director) must submit a report containing the following
information:
1. The title, number of shares and principal amount of each Security
in which the Covered Person had any direct or indirect beneficial
ownership when the person became a Covered Person;
2. The name of any broker, dealer or bank with whom the Covered
Person maintained an account in which any Securities were held
for the direct or indirect benefit of the Covered Person as of
the date the person became a Covered Person; and
3. The date that the report is submitted.
The form of such report is attached as Exhibit E.
E. Annually each Covered Person must certify that he has read and
understood the Code and recognizes that he is subject to such Code.
In addition, annually each Covered Person must certify that he has
disclosed or reported all personal Securities transactions required to
be disclosed or reported under the Code and that he is not subject to
any regulatory disability described in the annual certification form.
Furthermore, each Covered Person (except for a "disinterested"
director of the Fund Client who is required to submit reports solely
by reason of being such a director) annually must submit a report
containing the following information (which information must be
current as of a date no more than 30 days before the report is
submitted):
1. The title, number of shares and principal amount of each Security
in which the Covered Person had any direct or indirect beneficial
ownership;
2. The name of any broker, dealer or bank with whom the Covered
Person maintains an account in which any Securities are held for
the direct or indirect benefit of the Covered Person; and
3. The date that the report is submitted.
The form of such certification and report is attached as Exhibit F.
F. At least annually (or quarterly in the case of Items 4 and 5 below),
each of the Companies that has a Fund Client or that provides
principal underwriting services for a Fund Client shall, together with
each Fund Client, furnish a written report to the Board of Directors
of the Fund Client that:
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1. Describes any issues arising under the Code since the last
report.
2. Certifies that the Companies have developed procedures concerning
Covered Persons' personal trading activities and reporting
requirements relevant to such Fund Clients that are reasonably
necessary to prevent violations of the Code;
3. Recommends changes, if any, to the Fund Clients' or the
Companies' Codes of Ethics or procedures;
4. Provides a summary of any material or substantive violations of
this Code by Covered Persons with respect to such Fund Clients
which occurred during the past quarter and the nature of any
remedial action taken; and
5. Describes any material or significant exceptions to any
provisions of this Code of Ethics as determined under Article VI
below.
G. The Compliance Officer shall notify each employee of any of the
Companies or Affiliates as to whether such person is considered to be
an Access Person or Covered Person and shall notify each other person
that is considered to be an Access Person or Covered Person.
V. Sanctions
Upon discovering that a Covered Person has not complied with the
requirements of this Code, the Board of Directors of the relevant Company
or of the relevant Fund Client, whichever is most appropriate under the
circumstances, may impose on that person whatever sanctions the Board deems
appropriate, including, among other things, disgorgement of profit,
censure, suspension or termination of employment. Material violations of
requirements of this Code by employees of Covered Persons and any sanctions
imposed in connection therewith shall be reported not less frequently than
quarterly to the Board of Directors of any relevant Company or Fund Client,
as applicable.
VI. Exceptions
The Compliance Committee of the Companies reserves the right to decide, on
a case-by-case basis, exceptions to any provisions under this Code. Any
exceptions made hereunder will be maintained in writing by the Compliance
Committee and presented to the Board of Directors of any relevant Fund
Client at its next scheduled meeting.
VII. Preservation of Documents
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This Code, a copy of each report by a Covered Person, any written report
made hereunder by the Companies or the Compliance Officer, lists of all
persons required to make reports, a list of any exceptions, and the
reasons therefor, with respect to Article II.B, and any records under
Article II.G with respect to purchases pursuant to Article II.H above,
shall be preserved with the records of the relevant Company and any
relevant Fund Client for the period required by Rule 17j-1.
VIII. Other Laws, Rules and Statements of Policy
Nothing contained in this Code shall be interpreted as relieving any
Covered Person from acting in accordance with the provision of any
applicable law, rule or regulation or any other statement of policy or
procedure governing the conduct of such person adopted by the Companies,
the Affiliates or the Fund Clients.
IX. Further Information
If any person has any question with regard to the applicability of the
provisions of this Code generally or with regard to any Securities
transaction or transactions, he should consult the Compliance Officer.
S-12
<PAGE>
EXHIBIT A
LIST OF AFFILIATES OF THE COMPANIES
ALCE Partners, L.P.
Darien Associates LLC
Gabelli Asset Management Inc.
Gabelli Associates Fund
Gabelli Associates Limited
Gabelli Fixed Income Distributors
Gabelli Fixed Income, Inc.
Gabelli Global Partners, L.P.
Gabelli Global Partners, Ltd.
Gabelli International Gold Fund Limited
Gabelli International Limited
Gabelli International II Limited
Gabelli International Securities Limited
Gabelli Multimedia Partners, L.P.
Gabelli Performance Partnership L.P.
Gabelli Securities, Inc.
Gemini Capital Management Ltd.
GLI, Inc.
Gabelli Group Capital Partners, Inc. and its subsidiaries
Gabelli Global Partners, L.P.
Gabelli Global Partners, Ltd.
Gabelli European Partners, Ltd.
Gabelli Fund, LDC
MJG Associates, Inc.
New Century Capital Partners, L.P.
S-13
<PAGE>
EXHIBIT B
PRE-CLEARANCE TRADING APPROVAL FORM
I, ______________________________________ (name), am an Access Person or
authorized officer thereof and seek pre-clearance to engage in the transaction
described below for the benefit of myself or another Access Person:
Acquisition or Disposition (circle one)
- --------------------------
Name of Account:________________________________________________________________
Account Number:_________________________________________________________________
Date of Request:________________________________________________________________
Security:_______________________________________________________________________
Amount or # of Shares:__________________________________________________________
Broker:_________________________________________________________________________
If the transaction involves a Security that is not publicly traded, a
description of proposed transaction, source of investment opportunity and any
potential conflicts of interest:
I hereby certify that, to the best of my knowledge, the transaction described
herein is not prohibited by the Code of Ethics and that the opportunity to
engage in the transaction did not arise by virtue of my activities on behalf of
any Client.
Signature:____________________________ Print Name:______________________________
Approved or Disapproved(Circle One)
- -----------------------
Date of Approval:_____________________
Signature:____________________________ Print Name:______________________________
If approval is granted, please forward this form to the trading desk (or if a
third party broker is permitted, to the Compliance Officer) for immediate
execution.
S-14
<PAGE>
EXHIBIT C
TRANSACTION REPORT
Report submitted by:____________________________________________________________
Print Name
This transaction report (the "Report") is submitted pursuant to Section IV (B)
of the Code of Ethics of the Companies and supplies information with respect to
transactions in any Security in which you may be deemed to have, or by reason of
such transaction acquire, any direct or indirect beneficial ownership interest,
and with respect to accounts established by you in which any Securities were
held for your direct or indirect benefit, for the period specified below. If you
were not employed by or affiliated with us during this entire period, amend the
dates specified below to cover your period of employment or affiliation.
Unless the context otherwise requires, all terms used in the Report shall have
the same meaning as set forth in the Code of Ethics.
If you have no reportable transactions or new accounts, sign and return this
page only. If you have reportable transactions or new accounts, complete, sign
and return Page 2 and any attachments.
I HAD NO REPORTABLE SECURITIES TRANSACTIONS OR ACCOUNTS ESTABLISHED DURING THE
PERIOD _________ THROUGH ______________. I CERTIFY THAT I AM FULLY FAMILIAR
WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE INFORMATION
FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
Signature ______________________________________________________________________
Position _______________________________________________________________________
Date ___________________________________________________________________________
S-15
<PAGE>
Page 2
TRANSACTION REPORT
Report submitted by:____________________________________________________________
Print Name
The following tables supply the information required by Section IV (B) of the
Code of Ethics for the period specified below. Transactions reported on
brokerage statements or duplicate confirmations actually received by the
Compliance Officer do not have to be listed although it is your responsibility
to make sure that such statements or confirmations are complete and have been
received in a timely fashion.
<TABLE>
<CAPTION>
TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------
Whether Purchase, Name of
Sale, Short Sale Broker/Dealer with
Securities or Other Type of or through Whom Nature of
(Name and Date of Disposition or Quantity of Price per Share the Transaction Ownership of
Symbol) Transaction Acquisition Securities or Other Unit was Effected Securities
------- ----------- ----------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
NEW ACCOUNTS ESTABLISHED
----------------------------------------------------------------------------------------------
Name of Broker, Dealer or Bank Account Number Date Account Established
------------------------------ -------------- ------------------------
</TABLE>
* To the extent specified above, I hereby disclaim beneficial ownership of any
securities listed in this Report or brokerage statements or transaction
confirmations provided by me.
I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST
OF MY KNOWLEDGE, THE INFORMATION IN THIS REPORT IS TRUE AND CORRECT FOR THE
PERIOD OF __________ THROUGH __________.
Signature ___________________________ Date __________________________
Position ____________________________
S-16
<PAGE>
EXHIBIT D
BENEFICIAL OWNERSHIP
For purposes of the attached Code of Ethics, "beneficial ownership" shall be
interpreted in the same manner as it would be in determining whether a person is
subject to the provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder, except the determination of direct or
indirect beneficial ownership shall apply to all securities that a Covered
Person has or acquires. The term "beneficial ownership" of securities would
include not only ownership of securities held be a Covered Person for his own
benefit, whether in bearer form or registered in his name or otherwise, but also
ownership of securities held for his benefit by others (regardless of whether or
how they are registered) such as custodians, brokers, executors, administrators,
or trustees (including trusts in which he has only a remainder interest), and
securities held for his account by pledges, securities owned by a partnership in
which he is a member if he may exercise a controlling influence over the
purchase, sale of voting of such securities, and securities owned by any
corporation or similar entry in which he owns securities if the shareholder is a
controlling shareholder of the entity and has or shares investment control over
the entity's portfolio.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which a Covered Person is a legatee or beneficiary
unless there is a specified legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as beneficially
owned by a Covered Person where such person enjoys "financial benefits
substantially equivalent to ownership." The Securities and Exchange Commission
has said that, although the final determination of beneficial ownership is a
question to be determined in the light of the facts of the particular case,
generally a person is regarded as the beneficial owner of securities held in the
name of his or her spouse and their minor children. Absent special circumstances
such relationship ordinarily results in such person obtaining financial benefits
substantially equivalent to ownership, e.g., application of the income derived
----
from such securities to maintain a common home, or to meet expenses that such
person otherwise would meet from other sources, or the ability to exercises a
controlling influence over the purchase, sale or voting of such securities.
A Covered Person also may be regarded as the beneficial owner of securities held
in the name of another person, if by reason of any contract, understanding,
relationship, agreement, or other agreement, he obtains therefrom financial
benefits substantially equivalent to those of ownership.
A Covered Person also is regarded as the beneficial owner of securities held in
the name of a spouse, minor children or other person, even though he does not
obtain therefrom the aforementioned benefits of ownership, if he can vest or
revest title in himself at once or at some future time.
S-17
<PAGE>
EXHIBIT E
INITIAL HOLDINGS REPORT
Report submitted by:____________________________________________________________
Print Name
This initial holdings report (the "Report") is submitted pursuant to Section IV
(D) of the Code of Ethics of the Companies and supplies information with respect
to any Security in which you may be deemed to have any direct or indirect
beneficial ownership interest and any accounts established by you in which any
Securities were held for your direct or indirect benefit, as of the date you
became subject to the Code of Ethics.
Unless the context otherwise requires, all terms used in the Report shall have
the same meaning as set forth in the Code of Ethics.
If you have no reportable Securities or accounts, sign and return this page
only. If you have reportable Securities or accounts, complete, sign and return
Page 2 and any attachments.
I HAVE NO REPORTABLE SECURITIES OR ACCOUNTS AS OF ___________. I CERTIFY THAT I
AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE,
THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
Signature ______________________________________________________________________
Position _______________________________________________________________________
Date ___________________________________________________________________________
S-18
<PAGE>
Page 2
INITIAL HOLDINGS REPORT
Report submitted by:____________________________________________________________
Print Name
The following tables supply the information required by Section IV (D) of the
Code of Ethics as of the date you became subject to the Code.
<TABLE>
<CAPTION>
SECURITIES HOLDINGS
- -----------------------------------------------------------------------------------------------------------------
Name of Broker/Dealer Where Nature of Ownership of
Securities (Name and Symbol) Quantity of Securities Securities Are Held Securities
- ---------------------------- ---------------------- ------------------- ----------
<S> <C> <C> <C>
ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------
Name of Broker, Dealer or Bank Account Number
------------------------------ --------------
</TABLE>
I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST
OF MY KNOWLEDGE, THE INFORMATION IN THIS REPORT IS TRUE AND CORRECT AS OF
__________________________________.
Signature ____________________________ Date _____________________________
Position _____________________________
S-19
<PAGE>
EXHIBIT F
ANNUAL CERTIFICATION OF CODE OF ETHICS
A. I (a Covered Person) hereby certify that I have read and understood the
Code of Ethics dated February 15, 2000, and recognize that I am subject to
its provisions. In addition, I hereby certify that I have disclosed or
reported all personal Securities transactions required to be disclosed or
reported under the Code of Ethics;
B. Within the last ten years there have been no complaints or disciplinary
actions filed against me by any regulated securities or commodities
exchange, any self-regulatory securities or commodities organization, any
attorney general, or any governmental office or agency regulating
insurance, securities, commodities or financial transactions in the United
States, in any state of the United States, or in any other country;
C. I have not within the last ten years been convicted of or acknowledged
commission of any felony or misdemeanor arising out of my conduct as an
employee, salesperson, officer, director, insurance agent, broker, dealer,
underwriter, investment manager or investment advisor; and
D. I have not been denied permission or otherwise enjoined by order, judgment
or decree of any court of competent jurisdiction, regulated securities or
commodities exchange, self-regulatory securities or commodities
organization or other federal or state regulatory authority from acting as
an investment advisor, securities or commodities broker or dealer,
commodity pool operator or trading advisor or as an affiliated person or
employee of any investment company, bank, insurance company or commodity
broker, dealer, pool operator or trading advisor, or from engaging in or
continuing any conduct or practice in connection with any such activity or
the purchase or sale of any security.
E. Unless I am exempt from filing an Annual Holdings Report (as a
"disinterested" director of a Fund Client or an independent director of an
Affiliate), I have attached a completed Annual Holdings Report which is
accurate as of a date no more than 30 days ago.
Print Name: ________________________________________
Signature: ________________________________________
Date: ________________________________________
S-20
<PAGE>
Page 2
ANNUAL HOLDINGS REPORT
Report submitted by:____________________________________________________________
Print Name
The following tables supply the information required by Section IV (E) of the
Code of Ethics as of a date no more than 30 days before this report is
submitted. If you have no reportable Securities holdings or accounts, write
"None" in the space provided.
<TABLE>
<CAPTION>
SECURITIES HOLDINGS
- -----------------------------------------------------------------------------------------------------------------
Name of Broker/Dealer Where Nature of Ownership of
Securities (Name and Symbol) Quantity of Securities Securities Are Held Securities
- ---------------------------- ---------------------- ------------------- ----------
<S> <C> <C> <C>
ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------
Name of Broker, Dealer or Bank Account Number
- ------------------------------ --------------
</TABLE>
Signature _____________________________ Date ____________________________
Position ______________________________
S-21
<PAGE>
Exhibit 17
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Paul T. Kane,
Stephen W. Bright, George M. Boyd and Christopher E. Palmer, and each of them
singly, our true and lawful attorneys, with full power to them and each of them,
to sign for us, and in our names and in any and all capacities, any and all
amendments, including post-effective amendments, to the Registration Statement
on Form N-1A of The Fulcrum Trust and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and each of them, acting
alone, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys or any of them may lawfully do or cause to be
done by virtue hereof. Witness our hands on the date set forth below.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ George J. Sullivan, Jr. Chairman, President and Trustee April 24, 2000
- ---------------------------------------- --------------
George J. Sullivan, Jr.
/s/ Thomas N. Dallape Vice President, Trustee April 24, 2000
- ---------------------------------------- --------------
Thomas N. Dallape
/s/ Gordon Holmes Trustee April 24, 2000
- ---------------------------------------- --------------
Gordon Holmes
</TABLE>
